Washington: The US economy grew at its weakest pace in three years in the first quarter as consumer spending barely increased and businesses invested less on inventories, in a potential setback to President Donald Trump’s promise to boost growth.
Gross domestic product increased at a 0.7 percent annual rate also as the government further cut defence spending, the Commerce Department said yesterday in its advance estimate. That was the weakest performance since the first quarter of 2014. The economy grew at a 2.1 percent pace in the fourth quarter. The pedestrian first-quarter growth pace is, however, not a true picture of the economy’s health.
The labour market is near full employment, generating stronger wage growth, and consumer confidence is near multi-year highs. First-quarter GDP also tends to under-perform because of difficulties with the calculation of data that the government has acknowledged and is working to rectify. Economists say it would be difficult for Trump to fulfill his pledge to raise annual GDP growth to 4 percent, without increases in productivity.
Prices for government bonds fell after the data, while the dollar rose. US stock futures trimmed gains.
Growth in consumer spending, which accounts for more than two-thirds of US economic activity, braked to a 0.3 percent rate in the first quarter. That was the slowest pace since the fourth quarter of 2009 and followed the fourth quarter’s robust 3.5 percent growth rate.
The weakness in consumer spending is blamed on a mild winter, which undermined demand for heating and utilities production. Higher inflation, which saw the personal consumption expenditures index averaging 2.4 percent in the first quarter - the highest since the second quarter of 2011 - also weighed on consumer spending.
Government delays issuing income tax refunds to combat fraud also curbed consumer spending. But with savings rising to $814.2bn from $778.9bn in the fourth quarter, consumer spending is likely to pick up.
A separate report yesterday from the Labour Department showed private wages and salaries accelerated 0.9 percent in the first quarter, the largest increase in a 10 years, after rising 0.5 percent in the fourth quarter.
Economists believe Federal Reserve officials are likely to view both the anemic consumer spending and GDP growth as temporary when they meet next week. Fed Chair Janet Yellen (pictured) has previously described quarterly GDP as “noisy.”
The Fed is not expected to raise interest rates next week.
