US Economic Growth Slows To 2.3%

U.S. economic growth slowed to 2.3% pace in first quarter — better than expected

Gross domestic product increased at a 2.3 percent annual rate, the Commerce Department said in its snapshot of first-quarter GDP on Friday, also restrained by a moderation in business spending on equipment and investment in homebuilding. In fact, the first three months of 2018 saw the fastest growth of any first quarter since the 3.2 percent rate in 2015.

Consumer spending, which accounts for 70 percent of economic activity, decelerated sharply from a 4 percent growth rate in the fourth quarter to a 1.1 percent pace in the first quarter.

Quarter four GDP was 2.9 percent.

This was partly offset by higher spending on business inventories, which companies ran down as they raced to meet consumer demand following the back-to-back hurricanes and the devastating California wildfires.

Trump has predicted continuous 3 percent GDP growth and based deficit-expanding policies like tax cuts and increased spending on those levels, despite many economists saying they were unsustainable.

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Republicans who supported the administration's successful push to win passage of major tax cuts in December said the reports on wages and GDP growth were indications that the tax cuts and other parts of the Trump economic program were beginning to have an impact.

Businesses buying less equipment also held back the rate of growth. A bit of inflation is considered a good thing, but some economists worry that the $1.9 trillion in debt the CBO predicts the USA will take on due to the tax plan will increase inflation too rapidly.

Drops in consumer spending, exports and spending by state and local governments were behind the slowdown, the government said.

Economists say however the current pace of growth is likely above potential, making sustained growth of three percent unrealistic.

Nonresidential fixed investment rose 6.1 percent at the annual rate in the first quarter, extending the 6.8 percent gain in the fourth quarter. Investors expect the central bank to raise interest rates in June for the second time this year. In addition, RBC Economics research said there is "little reason for concern about the strength of the US economy for a while". The Congressional Budget Office recently estimated 3.3 percent growth this year, dropping to 2.4 percent in 2019 and 1.8 percent the following year.

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"The average for the two quarters, two percent, is in line with the prior trend", he said in a client note. Some economists believe that wintry weather is less to blame for the soft Q1 numbers than a quirk in the seasonal adjustment methodology used by the Bureau of Economic Analysis. The sluggish consumer spending demonstrates consumers are not yet fully feeling the effects of the tax cuts.

Jacob Deppe, head of trading at online trading platform Infinox, said the GDP figures were likely to reinforce the Federal Reserve's resolve to keep raising interest rates.

Investment in home building was unchanged in the first three months of the year, reflecting a decline in brokers' commissions as an acute shortage of properties hurt home sales.

The stronger than expected GDP growth reflected positive contributions from non-residential fixed investment, consumer spending, exports, private inventory investment, and government spending.

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