U.S. GDP Comes in Below Expectations at 0.7 Percent

Gross domestic product (GDP) expanded at an annualized 0.7% in the first quarter, the slowest in three years, preliminary data from the Commerce Department revealed Friday. Higher inflation that saw expenditures in personal consumption average 2.4% during the first three months of the year, which was the highest since the 2011 second quarter, also weighed on spending by consumers. That was the poorest showing in more than seven years.

Economists attributed the sharp slowdown in consumer spending to shrinking utility bills due to warmer weather, a drop-off in auto sales and a delay in sending out tax refund checks by the IRS, which also dampened spending.

Sal Guatieri, senior economist at BMO Capital Markets, said he expected consumer and government spending to bounce back, leading to a much stronger second quarter.

All in all, not the kind of news President Donald Trump wanted to hear on the eve of his 100th day in office or after his campaign promises to get the economy growing by 3 percent a year or better.

"Most economists believe the track for the USA economy for the intermediate future is going to be very familiar to what has been seen over the last number of years, and that's somewhere between one and probably 2.5 percent on an annual basis".

U.S. GDP Comes in Below Expectations at 0.7 Percent

Even without the seasonal quirk and temporary restraints, economists say it would be hard for Trump to fulfill his pledge to raise annual GDP growth to four per cent, without increases in productivity. President Trump made a pledge to raise growth to 4%.

"Growth of less than 1 percent means the wheels are up but the economy's engines can not gain any altitude", said Chris Rupkey, chief financial economist at Mitsubishi UFG Financial Group in NY.

Britain's powerhouse services sector, which accounts for 78% of the United Kingdom economy, put downward pressure on overall growth after expanding by 0.3% between January and March this year, slowing from 0.8% between October and December of 2016. In those years, real GDP declined by 8.5 percent, 6.4 percent, 12.9 percent and 1.3 percent. Most experts believe the economy is picking up. Economists said Federal Reserve officials were likely to view both the anemic consumer spending and GDP growth as temporary when they meet next week. The 9.4 percent increase was more than 10 times the previous quarter's number and the best since the fourth quarter of 2013.

US Secretary of Commerce Wilbur Ross said that the weak first quarter performance showed the need for the new policies Trump is offering. In the fourth quarter the core PCE rose at just a 1.3 percent rate, so the year-over-year change is still just 1.7 percent. Economic output grew 1.9% in the first quarter compared with the same period a year earlier.

Jobs growth has remained solid, even though in March employers added only 98,000 to their payrolls, and the unemployment rate fell to 4.5 percent. Economic output has grown an average of roughly 2% during the almost eight-year expansion.

  • Zachary Reyes