Growth in the U.S. economy during the first quarter didn’t slow as much as first estimated, according to government numbers released Friday, while separate reports showed weaker factory activity but continued high consumer sentiment.
The Commerce Department reported the nation’s gross domestic product (GDP) increased at an annual rate of 1.2% in the first three months up the year, the weakest performance since the first quarter of 2016.
The latest reading is up from a pace of 0.7% that it reported a month earlier. but down from a rate of 2.1% in the final quarter of 2016.
Adding to this slightly better performance was higher growth in consumer spending while inventory investment slowed.
While this updated performance isn’t as good as many were hoping, some analysts believe the Federal Reserve remains on track to push interest rates higher again.
“On balance, data to-date, [the numbers] remains consistent with our expectation that overall GDP growth bounced back to a solid 2.9% rate in the second quarter and, combined with further tightening in labor markets, is consistent with our expectation that the Fed will hike the fed funds target range by another 25 basis points (.25%) in June,” said Nathan Janzen, senior economist at RBC Economic Research.
Durable Goods Orders, Shipments Decline
Meantime, a separate Commerce Department report showed new orders for factory-made goods designed to last at least three years fell for the first time in five months during April along with a decline in shipments.
New orders for durable goods fell 0.7% from the month before, less than analysts expectations, and following a upwardly revised March increase of 2.3%. Shipments slipped 0.3% following a March drop of 0.1%.
Also, a key indicator of business investment, orders for non-defense capital goods minus aircraft, remained flat for the second straight month.
“The March factory orders report showed a 0.5% increase in core capital goods orders, but today’s report revised away that gain,” said Tim Quinlan, senior economist at Wells Fargo Securities. “Core capital goods orders have now flat-lined for two months in a row. This is the most worrying dynamic in today’s report. This hard data suggest that the long- overdue rebound in the factory sector is delayed yet again.”
So far, second quarter data shows the U.S. factory sector is continuing to lose steam with a preliminary gauge for May showing activity slowed to its lowest level in eight months.
These reports were released as a survey of consumers showed their feelings about the current economy and what’s to come remain upbeat. The May results of the University of Michigan Survey of Consumers reported upturns in both its monthly and year-over-year measures of consumer sentiment.
According to Surveys of Consumers Chief Economist Richard Curtin, consumer sentiment has continued to move along the high plateau established following Donald Trump's election with the final May figure virtually unchanged from either earlier in May or the April reading. However, the results differ when it comes to political viewpoints, with Democrats expecting a recession and Republicans seeing robust economic growth.
“Unlike differences in expectations across age, education, or income groups, which usually reflect actual differences in prospects for employment and income expectations, for example, partisanship is reflected by economic policy preferences,” he said. “Since no major policies, such as healthcare, taxes, or infrastructure spending have yet been adopted, the partisan divide may reflect differences in policy preferences expressed as expected economic outcomes. Thus, the extreme partisan divide may persist until passage is deemed either inevitable or impossible. While extremes may well narrow, it is unlikely that the impact of partisanship on economic expectations will disappear.”