US economy registers slower growth

GDP rose 2.3% in first quarter, cooling from quarter before as consumers pulled back

WASHINGTON • US economic growth cooled last quarter as consumers pulled back following outsize spending in the prior period, though solid business investment cushioned some of the weakness.

Gross domestic product (GDP) rose at a 2.3 per cent annualised rate after climbing 2.9 per cent in the prior quarter, the Commerce Department reported yesterday.

The median forecast of economists surveyed by Bloomberg called for a 2 per cent gain.

Consumer spending, the biggest part of the economy, rose 1.1 per cent, matching estimates and marking the smallest gain since 2013.

While GDP growth was the best for any January-March period since 2015, it is a step down from three quarters of GDP growth above or near 3 per cent, and a reminder that the first quarter remains plagued by data quirks.

Analysts expect a rebound as tax cuts take hold amid a strong job market, though tailwinds such as low inflation and borrowing costs are starting to dissipate, and trade tensions represent a headwind.

A separate Labor Department report yesterday 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 2.3 per cent pace of GDP growth is still faster than what the Federal Reserve sees as the economy's long-term potential rate, and officials have previously said they view the first-quarter slowdown as transitory, with the economy poised to reach a milestone next month - the second-longest expansion on record.

Investors expect the central bank to raise interest rates in June for the second time this year.

Other figures yesterday cast a shadow over the strong, synchronised global upswing: Europe's economy lost momentum in the first quarter as expansions slowed from the United Kingdom to France, partly because winter storms ripped through the region.

Government spending slowed to a 1.2 per cent gain from 3 per cent, as both federal and state and local outlays cooled. Trade added 0.2 percentage point to growth, while inventories added 0.43 point, a reversal from the prior quarter, when they subtracted a combined 1.69 points. Trade and inventories are two of the most volatile components in GDP calculations.

The report also showed price pressures are picking up.

The GDP price index rose 2 per cent in the first quarter. A measure of inflation, tied to consumer spending and excluding volatile food and energy costs, advanced at a 2.5 per cent annualised pace, the fastest since 2011, adding to signs that price gains are picking up.

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on April 28, 2018, with the headline 'US economy registers slower growth'. Print Edition | Subscribe