Published: Sat, April 28, 2018
Finance | By Kristine Clayton

Economy grew 2.3 percent in first quarter

Economy grew 2.3 percent in first quarter

In the fourth quarter, current-dollar GDP rose 5.3 percent. In the fourth quarter, real GDP increased 2.9 percent.

While the Trump administration has vowed to accelerate annual US economic growth to over 3 percent, the Federal Reserve last month expected USA economy to expand at 2.7 percent for the whole year 2018.

Consumer spending increased by 1.1% in the first quarter, well below the fourth quarter's rapid 4% rate. 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 labor market is near full employment and both business and consumer confidence are strong.

Despite a weak start to the year, economists expect growth will accelerate in the second quarter as households start to feel the impact in their paychecks from the $1.5 trillion income tax package which came into effect in January. Service-related consumer spending expanded somewhat at 2.1%, but if those numbers hold up in the revisions, someone will have to figure out what has consumers spooked - especially after the big tax cuts put more money in their pockets. Also, lower corporate tax rates and increased government spending will likely lift annual economic growth to President Trump's target of 3%. The economy grew at a 2.9 percent rate in the fourth quarter. The GDP estimate is the first of three for the quarter, with the other releases scheduled for May and June when more information becomes available.

"It is increasingly hard to argue that the 2 percent inflation target hasn't already been breached", said Steven Blitz, chief US economist at TS Lombard in NY.

Trade added 0.20 percentage point to GDP growth as weak a US dollar and strengthening global economy bolstered exports.

Business spending on equipment is forecast to have slowed after double-digit growth in the second half of 2017.

While the administration expects the economy to grow at rates of 3 percent for the rest of this decade, private analysts are less optimistic. The question itself is important - Nick Timiraos of The Wall Street Journal tweeted that this "disagreement matters because you end up with large deficits if Trump is wrong" - but one report isn't going to settle the issue.

Commerce Department analysts reported worrying signs of rising prices with a key price index, excluding volatile food and energy costs, rising 2.5 percent. The U.S. central bank raised interest rates last month in a nod to the strong labor market and economy, and forecast at least two more rate hikes this year.

"Right now, consumers are cautious", Navy Federal Credit Union economist Robert Frick said in a note to clients, adding the drop in durable goods spending "points to consumers avoiding big ticket items to conserve cash".

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.

With consumer spending slowing, inventories increased at a $33.1 billion rate in the first quarter, up from a $15.6 billion pace in the prior period.

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