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Economic Watch: Overall Growth Revised Upward

June 29, 2017

By Evan Lockridge

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The U.S. economy grew faster in the first quarter of the year than earlier estimates indicated, according to a Commerce Department report released Thursday, but there’s little optimism there the second quarter will show a big surge.

The gross domestic product (GDP) expanded at an annual rate of 1.4%, better than a consensus estimate from analysts. It’s also twice the 0.7% pace that was initially reported at the end of April and slightly better than the 1.2% rate reported a month ago.

The increase was due to more complete data showing consumer spending increased nearly twice as much as an earlier estimate, but was still the lowest since the second quarter of 2013. Also, exports increased while the rest of the picture was essentially unchanged.

Despite the upward revision, it was still the slowest quarter of growth since the second quarter of 2016.

The Trump administration's stated target of swiftly boosting U.S. growth to 3% remains a challenge, according to Reuters. A sustained average of 3% growth has not been seen since the 1990s. Since 2000, the U.S. economy has grown at an average 2% rate. The rate last year was 1.6%, the lowest in five years.

Hopes that the economy would step on the gas in the current second quarter have been dampened by recent disappointing numbers for retail sales, manufacturing and even housing.

“The first quarter turned out satisfactory enough and will take some of the heat off of the second quarter, where a big rebound was the initial expectation which, given continued weakness in consumer spending, has since eased back a bit,” said analysis from Econoday.

While this upward revision of the GDP is a welcome improvement, it does little to adjust the underlying storyline of the U.S. economy at the start of the year, according to Chief Economist Lindsey Piegza at Stifel Fixed Income.

“Following modest growth at the end of 2016, the U.S. economy lost significant momentum at the start of the new year, with the U.S. consumer pulling back considerably amid ample uncertainty and still-modest labor market gains,” she said. “Businesses were in part buoyed by optimism to increase investment amid anticipation of pro-growth policies, but the failure to see underlying improvement, particularly on the consumer side, left momentum stagnant and fundamentals lackluster at best.”

The report follows one earlier in the week from the International Monetary Fund, which projected the U.S. economy will grow 2.1% this year from 2016, down from its April forecast of 2.3%.

The organization, which seeks to foster global monetary cooperation and secure financial stability, also noted the U.S. would have a hard time achieving a 3% growth rate in 2018 and projected it will more likely be around 2.1% before falling to 1.9% in 2019.

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