US Q1 growth weakest in three years as consumer spending falters

Brittany BishopApr 30, 2017

This might surely has disappointed Trump as he had ambitions to boost the economic growth of US significantly.

Figures released Friday by the U.S. Commerce Department showed GDP increased at a 0.7% annual rate, also as the government cut back on defense spending. The wages and salaries component also increased 0.8 percent in the first three months of the year, the most since the second quarter of 2008.

Economic output often varies widely quarter to quarter, and most economists expect the economy to rebound to a rate of between 3% and 4% growth this spring.

The recent slowdown in economic growth was driven by consumer-focused industries such as retail, accommodation and the sale and fix of vehicles, all of which declined in the first quarter, according to the ONS. This is also largely attributable to good weather with future quarters showing considerably slower growth. "In Q1, United Kingdom services slowed to 0.3 percentpc from 0.8 percentpc the previous quarter, and a broader economic slowdown was slightly less dramatic". And other indicators of compensation haven't been quite as rosy - average hourly earnings in the Labor Department's employment report, for instance, were up 2.7 percent year-over-year in March, little changed from the average over the previous year. The consensus estimate on Wall Street is for 2.8% annualized growth in the second quarter.

The growth was the weakest quarterly performance since the first quarter of 2014, Xinhua news agency reported. Similar to consumer spending, the sharp decline may be an indicator that some of the fourth quarter growth-which added almost one percentage point to GDP-was borrowed from the first quarter.

Normally PCEs drop off a bit in the first quarter of any year, coming after the spending sprees of Q4 holiday seasons.

Retail spending was weaker in the first quarter 2017.

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.

"Q1 PCE rose a modest 0.3% and contributed a scant 0.23 percentage points to growth", McCarthy said in a note after the release.

In addition to weaker consumer activity, the first-quarter slowdown also reflected a cutback in restocking of store shelves. Michelle Meyer, Chief United States Economist at Bank of America Merrill Lynch, told Times that healthier business investment indicated that the overall economy was performing better than the headline numbers would suggest.

Most economists believe the economy is picking up speed.

"Slower growth of consumer spending and investment uncertainty following the referendum vote are acting as a drag on UK GDP, despite a reasonably buoyant global economy", Andrew Sentence of PwC said. Inventories subtracted 0.93 percentage point from GDP growth. They see growth just above 2 percent this year.

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