US GDP Climbs More Than Expected In First Quarter

Analysts expected consumer spending growth to slow in the first quarter curbing overall economic growth

The continued rebound by treasuries came following the release of a report from the Commerce Department showing a slowdown in the pace of US economic growth in the first quarter. On the one hand, economic growth slowed from the 2.9 percent rate recorded in the fourth quarter, despite the tax cuts taking effect in January.

In the appendix of the CBO report, it shows that, before accounting for economic growth, the tax cuts Trump signed into law late previous year would cut federal revenues by $1.69 trillion from 2018-2027. Most experts view the setback as temporary against the milieu of a tightening labor market along with strong consumer confidence and business growth.

The first quarter slowdown in consumer spending was offset by strength in business investment, which grew at a 6.1 percent rate, reflecting strong gains in oil and gas exploration, and by business inventory rebuilding, which added 0.4 percentage points to growth.

Trump promised during his 2016 campaign to bring about sustained 4 percent or higher GDP growth and create tens of millions of new jobs within his first term in office.

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. The median forecast of economists surveyed by Bloomberg called for a 2 percent gain. The economy grew at a 2.9 percent pace in the fourth quarter. A measure of inflation, tied to consumer spending and excluding volatile food and energy costs, advanced at a 2.5% annualized pace, the fastest since 2011, adding to signs that price gains are picking up.

The Commerce Department report contains plenty of mixed messages.

The first quarter tends to be weaker.




In a separate report in Friday, the Labor Department said wages and salaries shot up 0.9 percent in the first quarter. The decline in spending on vehicles and parts subtracted 0.42 percentage point from growth.

Government spending grew at a 1.2 percent rate, slowing from the fourth quarter's 3.0 percent pace.

"The trend is probably better than what you're seeing", said economist Jim O'Sullivan of High-Frequency Economics. Nonresidential fixed investment contributed 0.76 percentage points to top-line growth, with positive spending on inventories adding another 0.43 percentage points.

In the GDP report, after adjusting for inflation, final sales to domestic purchasers - which strip out inventories and trade - rose at a 1.6% pace, the slowest in two years, after a 4.5% advance that was the fastest since 2010.

On the other hand, the growth was indeed stronger than expected. Rebuilding and clean-up efforts following hurricanes late a year ago probably pulled forward spending into the fourth quarter. Unemployment is at 4.1%, the lowest in 18 years. 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. Residential investment increased at a 12.8 percent rate in the October-December period.

The biggest driver of the drop is what has been fueling growth for years - personal consumption expenditures (PCE), or more colloquially, consumer spending.

In addition, investors have focused on some company comments that suggest the economy may be weaker in 2018 than anticipated.

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