WASHINGTON (BLOOMBERG) - The US economy expanded at the slowest pace in three years as weak auto sales and lower home-heating bills dragged down consumer spending, offsetting a pickup in investment led by housing and oil drilling.
Gross domestic product, the value of all goods and services produced, rose at a 0.7 per cent annualized rate after advancing 2.1 per cent in the prior quarter, Commerce Department data showed Friday. The median forecast of economists surveyed by Bloomberg called for a 1 percent gain. Consumer spending, the biggest part of the economy, rose 0.3 per cent, the worst performance since 2009.
The GDP slowdown owes partly to transitory forces such as warm weather and volatility in inventories, which supports forecasts for a rebound as high confidence among companies and consumers and a solid job market underpin growth. Even so, the weakness at car dealers could weigh on expansion, and further gains in business investment could depend on the extent of policy support such as tax cuts.
"There's reason to think that some of the things that were weak in the first quarter should reverse in the second quarter, in particular consumption and inventories," Michael Feroli, chief US economist at JPMorgan Chase, said before the report. "Labour income is starting to pick up and actually keeping consumer spending pretty well supported."
The data are unlikely to dissuade Federal Reserve policy makers from raising interest rates in the coming months. Economists were largely expecting a weak growth figure, calling it a blip and not a sign of stagnation.
Analysts have pointed to issues with the Commerce Department's seasonal adjustment of growth data: Since 2000, expansion in the first quarter of each year has averaged 1 per cent, compared with 2.2 per cent for the rest of each year, according to Wells Fargo Securities.
Among the details, equipment spending advanced 9.1 per cent, a two-year high, while investment in nonresidential structures, including office buildings and factories, surged 22.1 per cent after dropping 1.9 per cent in the prior quarter.
Residential spending increased at a 13.7 per cent annualized rate, the most since the second quarter of 2015, compared with the prior quarter's advance of 9.6 per cent. Trade added slightly to growth, as exports increased by more than imports during the quarter.
Final sales to private domestic purchasers - which strip out government agencies, inventories and trade - rose at a 2.2 per cent pace after a 3.4 per cent advance.
Government spending fared worse, decreasing 1.7 per cent and taking away 0.3 percentage point from growth.
State and local outlays fell at a 1.6 per cent annualized rate, while spending by federal agencies dropped at a 1.9 per cent pace. The report also showed price pressures were picking up. The GDP price index rose 2.3 per cent in the first quarter. A measure of inflation tied to consumer spending and excluding volatile food and energy costs was up 2 per cent, the fastest in four quarters.