U.S. economy enjoys moderate growth in first quarter


The year is off to a sluggish start for the USA economy - and a decline in spending on clothing and footwear is partly to blame.

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

The U.S. economy slowed to a moderate 2.3 percent annual growth rate in the first quarter as consumer spending turned in the weakest performance in almost five years. "The big disappointment was the slowdown in consumption growth to only 1.1% annualized, from 4.0% in the final quarter of previous year". They expect a bounce back in the coming months, and preliminary estimates point to 3.6% growth in the second quarter. That was the largest increase since the first quarter of 2007 and followed a 0.5 percent rise in the fourth quarter. While consumer spending decreased, the labor market is near full employment and both business and consumer confidence are strong.

Many economists had forecast that growth would slip below 2 percent in the first quarter, reflecting a big pullback by consumers after a torrid pace of spending in the fourth quarter.

According to Reuters, while despite the weak start to the year, the lower corporate and individual tax rates should lift annual economic growth to the administration's 3% target.

That was less than the 3% rate of output growth during the final nine months of 2017, though above the 1.8% growth rate economists expected before the report. "After all, 2.3% is still above most estimates of the economy's potential growth rate", he said.

Economists say sluggish consumer spending demonstrates they are not yet fully feeling the benefits of the legislation in their wallets.

Federal Reserve officials are likely to shrug off tepid first-quarter growth.

The White House has estimated average annual household income would increase $4,000, factoring in economic growth and companies using their tax savings to increase wages. Economists had expected GDP to increase by about 2.0%. In five of the past eight years, the first quarter turned out to be the worst one of the year. Investment in new structures almost doubled to 12.3 percent. The cooling in equipment investment partly reflects a fading boost from a recovery in commodity prices. The PCE price index increased 2.7 percent, the same increase as in the fourth quarter.

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. Now it figures growth will be 3.3% - a significant upward revision. Nonresidential fixed investment, reflecting spending on commercial construction, equipment and software, rose at a 6.1% rate.

The program, which offers speedier delivery of purchases and other perks, will cost $119 a year in the USA beginning May 11, up from the $99-a-year rate available since 2014, the company disclosed Thursday on a conference call with financial analysts after reporting quarterly earnings.