Economic Growth Falling Short of Trump's Bold Predictions, New GDP Figure Shows

Marcus Newton
April 28, 2018

The US economy grew at a rate of 2.3% in the first quarter, according to the Commerce Department's preliminary report on Friday.

The slowdown in consumer spending in the first quarter offset more positive developments such as continued momentum in business investment and a rise in USA exports.

But he cautioned that the United States economy had "repeatedly swooned" in the first quarter of the year and added that 2.3% was still ahead of most economists' expectations. The year over year rate of Inflation edged up to 1.8% from 1.7%.

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 pace of America's economic growth slowed in the first quarter, though it remains stronger than economists had predicted.

"Earnings have stabilised, and the benefits of last year's tax reforms are starting to materialise, though the actual spending of money will take time", Curtin added. 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. 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. The figure will be revised twice in the next couple of months as more data becomes available.

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It's not a bad report, and this quarter has chronic issues with metrics.

Economists estimate that growth in consumer spending, which accounts for more than two-thirds of USA economic activity, braked to below a 1.5 percent rate in the first quarter.

Paul Ashworth, chief U.S. economist at Capital Economics, said the latest GDP figures were "something of a disappointment since the tax cuts should have provided an immediate boost". Remember, the USA central bank raised interest rates last month in affirmation of the strong economy and labor market and they forecast at least two additional rate hikes this year. Goods exports increased 6.1 percent in the first quarter, which was more than enough to offset the 2.1 percent rise in goods imports.

With Amazon.com and Walmart battling for consumer dollars, lower spending could underscore the challenges facing companies that sell food and household products. The cooling in equipment investment comes as the stimulus from a recovery in commodity prices is fading.

Over the past four quarters, GDP growth has averaged 2.9 percent, just below the 3 percent projection the Trump administration used in its budget for next year.

The housing sector stagnated in early 2018 as residential investment was flat, a development that likely reflected higher short-term interest rates and tax-code changes that diminished decades-old perks that encouraged homeownership. "So here's to 3.7% growth in 2Q!" The trade deficit decreased due to the 4.8% increase of exports outpacing the slower increase of imports of 2.6%, thus adding to GDP. Investment in new structures almost doubled to 12.3 percent. His goal was derailed in the first three months as consumers trimmed spending.

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