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United States economy grew modestly to start 2018

28 April, 2018, 15:23 | Author: Samuel Sharp
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The moderate first-quarter growth is, however, probably not a true reflection of the economy's health as GDP tends to be sluggish at the start of the year because of a seasonal quirk.

USA economic growth cooled last quarter as consumers pulled back after outsize spending in the prior period, though solid business investment cushioned some of the weakness and employee-compensation costs accelerated amid a tight job market.

The price index for gross domestic purchases increased 2.8 percent in the first quarter, compared with an increase of 2.5 percent in the fourth.

GDP, the value of all goods and services produced within the United States, increased at an annualized rate of 2.3%, down from 2.9% in the fourth quarter. "The big disappointment was the slowdown in consumption growth to only 1.1% annualized, from 4.0% in the final quarter of a year ago". Construction-equipment maker Caterpillar, a bellwether for growth, said this week that its first-quarter adjusted profit per share "will be the high water mark for the year", sending its shares down the most since mid-2016. That was the largest increase since the first quarter of 2007 and followed a 0.5 percent rise in the fourth quarter.

Strong business investment helped offset consumer pullback.

In the appendix of the CBO report, it shows that, before accounting for economic growth, the tax cuts Trump signed into law late a year ago would cut federal revenues by $1.69 trillion from 2018-2027.

A separate Labor Department report Friday showed that a broad measure of employee compensation rose more than expected in the first quarter, adding to signs that the tight job market is supporting a pickup in pay.

The economy grew at an annual pace of 2.3 percent in the first three months of 2018, truly falling short of President Donald Trump's growth targets for the first time since he took office. "After all, 2.3% is still above most estimates of the economy's potential growth rate", he said.

Federal Reserve officials are likely to shrug off tepid first-quarter growth. It also boosted its forecast for 2019 from a meager 1.5% to a respectable 2.4%. Still, the January-March increase came in better than expected, supporting hopes for a solid rebound for the rest of the year.

The slowdown in US consumer spending reflected slower auto sales as well as purchases on clothing, footwear, food and beverages, according to the report. Domestic demand increased at a 1.7 percent rate, the slowest in two years, after rising at a brisk 4.8 percent pace in the final three months of 2017. The cooling in equipment investment partly reflects a fading boost from a recovery in commodity prices. The core PCE price index rose at a 1.9 percent pace in the fourth quarter. The decline in spending on vehicles and parts subtracted 0.42 percentage point from growth.

With consumer spending slowing, inventories increased at a $33.1 billion rate in the first quarter, up from a $15.6 billion pace in the prior period.

Non residential fixed investment, a measure of corporate spending on structures and equipment, grew at 6.1 per cent in the first quarter, down from 6.8 per cent in the previous quarter.



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