US growth in Q1 revised up to 1.2 pct. but still weak

The nation's gross domestic product, the broadcast gauge of U.S. economic might, grew at a sluggish 1.2 percent rate in the first quarter of the year, far below President Donald Trump's growth targets.

Growth in the gross domestic product, the broadest measure of economic health, is down from a 2.1 percent annual growth rate in the fourth quarter and marks the weakest result in a year, the Commerce Department reported Friday. "With this second estimate for the first quarter, the general picture of economic growth remains the same; increases in nonresidential fixed investment and in personal consumption expenditures were larger and the decrease in state and local government spending was smaller than previously estimated". During the 2016 presidential campaign Trump had vowed to lift annual GDP growth to 4 per cent, though administration officials now see 3 per cent as more realistic. Net of inventories, the two-quarter GDP growth rate is running below 2% a year.

Many analysts have estimated that growth in the current April-June quarter is rebounding to an annual rate above 3 per cent.

"Economic indicators so far aren't entirely convincing on a second-quarter bounce in activity and show a USA economy struggling to surprise on the upside", said Scott Anderson, chief economist at Bank of the West in San Francisco.

Economists had expected that GDP growth would be revised up to a 0.9 percent rate.

The pace of consumer spending growth in the first quarter was upwardly revised to 0.6% from 0.3%, although it compares to the 3.5% jump in the fourth quarter.

Looking through the noisy quarter-to-quarter swings in GDP (as discussed in our recent report), we judge underlying growth in the USA economy to be running slightly better than 2%.

The electronics sector was a bright spot, with sales of communications equipment rising 4.2 percent, the strongest rate in a year.

"There were slight improvements in all of the key components, but it is still a very disappointing outcome, mainly caused by a clear slowdown in consumer spending and a run down in inventories", Knightley said.

Growth in consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose at a 0.6 per cent rate instead of the previously reported 0.3 per cent pace.

Businesses accumulated inventories at a rate of $4.3 billion in the last quarter, rather than the $10.3 billion reported last month.

The report on GDP represented the government's second of three estimates of GDP performance in the first quarter.

Inventories subtracted 1.07 per centage point from GDP growth instead of the 0.93 per centage point estimated last month.

  • Zachary Reyes