US first-quarter growth weakest in three years as consumer spending falters

KNBC-TV File

KNBC-TV File

Weak consumer spending slowed the USA expansion to a crawl in the first quarter, a setback economists view as temporary as wage gains buttress household confidence.

The Bureau emphasized that the first-quarter advance estimate released today is based on source data that are incomplete or subject to further revision by the source agency (see "Source Data for the Advance Estimate" on page 2).

The labor market is near full employment and consumer confidence is near multi-year highs, suggesting that the mostly weather-induced slowdown in consumer spending is probably temporary.

The government has acknowledged that first-quarter GDP numbers tend to underperform because of problems with season adjustments that it is working to rectify.

Real GDP represents the value of the production of goods and services in the economy and is adjusted for inflation. The administration touted the plan as a central pillar of Trump's promise to boost economic growth to 3%, while observers noted it would balloon the deficit by trillions of dollars and is is highly unlikely to make it into law in its current form.

Growth in consumer spending, which accounts for more than two-thirds of U.S. economic activity, braked to a 0.3 per cent rate in the first quarter. That's compared with an increase of 2 percent in the fourth quarter of 2016. That would be in line with the mediocre performance of the eight-year economic expansion, when growth has averaged just 2.1 percent, the poorest showing for any recovery in the post-World War II period.

"This Q1 was affected by late tax refunds and a late Easter, so that depressed consumer spending in the quarter", said Zandi. Business investment is "encouraging", while consumers "had a little bit of a hangover, and they'll bounce back in second quarter". "That's something we expect to continue over the next couple of years", Fed Chair Janet Yellen said.

The Fed is not expected to raise interest rates next week.

Consumer spending appears to be the biggest drag on the US economy.

Pessimistic commentators focus on how first quarter growth was lower than fourth quarter 2016, which was a great figure which none of them predicted.

Business investment, which has been sluggish the last couple of years, increased sharply.

During the first quarter, a chief driver of growth was private, fixed nonresidential investment, which contributed 1.12 percentage point to expansion, led by a record increase in mining exploration, shafts and wells, a category that includes oil structures.

The ONS also warned that "there were falls in several important consumer-focused industries, such as retail sales and accommodation; this was due in part to prices increasing more than spending". State and local outlays fell at a 1.6 percent annualized rate, while spending by federal agencies dropped at a 1.9 percent pace. For the first quarter, trade was actually a small positive after a major drag in the fourth quarter.

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