US economic growth weakened to 0.7 percent in first quarter

Paterniano Del Favero
Aprile 30, 2017

In the fourth quarter of 2016, according to the BEA, real gross domestic product grew at an annual rate of 2.1 percent.

Economists had been expecting GDP growth to slow as consumers tightened their belts in the face of rising inflation, but they had pencilled in a higher growth figure of 0.4%.

The labor market now is close to full employment and the confidence of consumers is close to highs of multi-years, which suggests that the sharp slowdown mostly created by weather in spending by consumers is likely to be short-lived. "Imports, which are a subtraction in the calculation of GDP, increased".

Trump had repeatedly attacked the weak GDP growth rates during the campaign as an example of what he said were the Obama administration's failed economic policies.

Each time, those dismal numbers were either revised upward or followed by rosier second-quarter reports.

He said that strong business and consumer sentiment "must be released from the regulatory and tax shackles constraining economic growth".

Mr Trump is also basing planned multi-trillion-dollar tax cuts on an anticipated return to 3 per cent annual growth, which the White House says will generate the revenue needed to pay for the tax cuts.

On Wednesday, the administration released an outline of its tax-cut plan, proposing to cut rates on both individuals and businesses and provide what Mnuchin called "massive tax reform".

Additionally, the index of services in the United Kingdom rose 0.5%, matching expectations and after a prior gain of 0.6%.

Friday's report also noted that consumer spending grew at just 0.3 percent in the first quarter, the slowest pace since 2009. That would be in line with the 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. "Labor income is starting to pick up and actually keeping consumer spending pretty well supported".

Clearly the out-of-control government growth seen over the last sixteen years has failed to "stimulate" the economy. Weaker consumer and inventory spending in the first quarter could explain the lower figures, with government spending also serving as a drag on the headline number.

Last month, the BEA published its final estimate for the fourth quarter of 2016 - revealing 2.1 percent growth for the quarter and 1.6 percent growth for the year. "Put in this context, today's data should not be viewed being disturbing, but rather history repeating itself", said Ward McCarthy, chief financial economist at Jefferies. The jobless rate is expected to rise from current 4.7 percent to about 5 percent by the end of 2017, stated Nordea Bank.

Spending could be restrained further if the Federal Reserve continues with its plan to hike interest rates two more times this year, after already raising rates at its March meeting. Companies accumulated stock at a rate of $10.3 billion, down from $49.6 billion in the previous quarter.

The consensus forecast among analysts had been for a 1.2 per cent expansion.

Among the details, equipment spending advanced 9.1 percent, a two-year high, while investment in nonresidential structures, including office buildings and factories, surged 22.1 percent after dropping 1.9 percent in the prior quarter. There may be a further drop in the next few quarters due to a glut of used cars. With wage growth lifting off its decade-long stagnation levels, the outlook on household consumption is now brighter for the remainder of this year.

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