US Economic Growth Slows More Than Expected In Q1

The U.S. economy grew at its weakest pace in three years in the first quarter as consumer spending nearly stalled, but a surge in business investment and wage growth suggested activity would regain momentum as the year progresses.

The Department of Commerce reported on Friday that the economy grew at a 0.7% annual pace in the Q1, following the preceding quarter's 2.1% and falling behind expectations for a 1.3% climb.

Investment in intellectual products has been extraordinarily weak in recent quarters. That would be an improvement from last year's 1.6 percent, the weakest showing in five years, but far below Trump's goal.

"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.

While the slowdown was owed partly to transitory forces and seasonal-adjustment issues, weakness in consumer spending raised concerns about a lagging economy. Manufacturing output was up 0.5% during the quarter, but construction output also slowed to rise by just 0.2%. Investors and Wall Street seem confident that this time, the predictions will finally come true - hence the 11 percent surge in stocks since the election - but some independent economists are wary. The economy has a habit of starting the calendar year off sluggishly and strengthening later on.

There were some positive signs in an otherwise downbeat report.

The broader trend of subdued but steady growth remains intact.

It's important to caution that the first estimate for economic growth to start the year has been unusually low in recent years and has been later revised upward. They are forecasting growth of this year around 2.2 percent.

But a Labor Department report also released Friday pointed in a different direction from GDP.

Spending on mining exploration, wells, and drilling rigs swelled at a record pace of 449 percent after growing 23.7 percent in the fourth quarter of 2016. That largely reflected a drop in purchases of durable goods-big-ticket items such as cars and refrigerators. One possible factor: a three-month hiring freeze imposed by the Trump administration. Weaker consumer and inventory spending in the first quarter could explain the lower figures, with government spending also serving as a drag on the headline number.

And when consumers don't buy, stores don't invest in restocking their shelves. The slowdown in inventory rebuilding cut almost a percentage point from growth in the first quarter.

The sector grew by 0.3 per cent, down from 0.8 per cent in the final quarter of 2016.

And new strength in the global economy pushed up demand for USA exports, which grew at an annual rate of 5.8%. 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. Core prices, which exclude volatile food and energy costs, increased 2%.

  • Zachary Reyes