United States growth hits three-year low at start of 2017
- Author: Joanne Flowers May 05, 2017,
May 05, 2017, 0:44
The pedestrian first-quarter growth pace is, however, not a true picture of the economy's health.
Many economists believe growth in the current April-June quarter will rebound to a rate of 3 percent or better as consumer spending, which accounts for two-thirds of economic activity, regains momentum.
"The economy's fine, the numbers notwithstanding", said Moody's Analytics economist Mark Zandi.
Trump had repeatedly attacked the weak GDP growth rates during the campaign as an example of what he said were the Obama administration's failed economic policies.
Economists had been expecting GDP growth to slow as consumers tightened their belts in the face of rising inflation, but they had pencilled in a higher growth figure of 0.4%.
Indeed, Trump's one-page tax plan, which cuts both business and individual income taxes dramatically, will take a while to pass through Congress, with its effects passed on to the broader economy one or two quarters after the reform's implementation. GDP hasn't seen growth of that magnitude since before the financial crisis.
But it remained unclear how many recent economic events could be credited to - or blamed on - the president.
That was the weakest performance since the first quarter of 2014.
The GDP report released Friday was the first of three estimates the government will make of first quarter growth.
The decline in growth is due to the smallest increase in consumer spending since the end of 2009, which broadly mirrors fewer vehicle sales. In the fourth quarter, output grew at a 2.1% rate.
A separate report from the Labor Department Friday showed that its employment cost index-roughly, a proxy for wages-had its best performance in almost a decade, rising by 0.8 percent.
On the positive side, business investment rose at a 9.4 percent rate, helped by a record surge in spending in the category that tracks spending in the energy sector. Spending on services grew at the slowest pace in four years, partly reflecting lower utility bills.
University of MI economist Justin Wolfers on Twitter concurred with the White House's assessment that first-quarter GDP quarter is historically weak. This is also largely attributable to good weather with future quarters showing considerably slower growth. Even though hiring has been humming along and the jobless rate of 4.5 percent is the lowest in nearly a decade, a sustained pickup in wage growth would help boost consumers' ability to spend.
Federal Reserve policymakers are set to meet next week, and while there is little expectation that an interest-rate increase will be announced when the meeting ends Wednesday, the latest economic reading could sway the Fed's outlook.
This confirms anecdotal reports in the Fed's economic survey from companies that have been obliged to raise wages and benefits in an effort to attract qualified candidates to job openings. Housing construction was also strong, growing at a 13.7 percent rate, the fastest pace in almost two years.