Economic Watch: GDP Growth Slows From Previous Quarter

Overall economic activity in the U.S. cooled slightly in the first quarter of the year as consumer spending eased, but the performance was better than analysts were expecting.

The gross domestic product (GDP) increased at an annual rate of 2.3%, according to the first of three estimates from the Commerce Department. This compares to a consensus estimate from analysts of a 2% annual performance, but it's down from the 2.9% annual rate in the final quarter of 2017.

The second of the three estimates, which will be based on more complete data, is set for release in about a month.

This measure of the total output of goods and services was pulled down by the anemic 1.1% annualized rise in consumer spending, one of the largest portions of the economy – it was one of the smallest improvement since 2013. In comparison, consumer spending increased at a 4% annual rate in the final quarter of last year, boosted by post-hurricane-related re-stocking activity.

On a more positive note, the first quarter performance was the best January-through-March period since 2015.

Despite this, the GDP annual rate is below goals set by President Trump, who campaigned on platform of boosting overall economic growth by at least 3% annually over a sustained period of time.

This latest number is, rather, in-line with the overall GDP performance of 2.3% for all of 2017 and is close to the post-Great Recession growth rate.

Analyzing the GDP Numbers

So what does all this mean? A better-than-expected rise in first quarter GDP, at least relative to weak expectations, according to Stifel Chief Economist Lindsey Piegza, while the storyline remains the same.

“After above-trend growth in the middle part of last year with back-to-back quarters of above 3% growth, the U.S. economy was unable to maintain such a heightened pace of activity as we headed into the final months of last year,” she said. "Now we see a further loss of momentum at the start of 2018, particularly amid a pullback in the consumer sector. As a consumer-based economy, the fastest way to derail the U.S. economy is a slowdown in overall spending patterns.”

To be fair, she said, the U.S. economy has historically experienced weaker growth at the start of a new year, as consumers front-load spending into fourth quarter amid the holiday season.

“Tax reform, however, was expected to mitigate that typical pattern. What we saw instead was consumers spending in anticipation of a possible bump in after-tax take-home pay, an increase which for many failed to materialize into a meaningful increase in income and thus, offered minimal support to first quarter consumption.”

Analysts at TD Economics expect Friday’s GDP report will translate into two more interest rate hikes by the Federal Reserve this year. In addition, RBC Economics research said there is “little reason for concern about the strength of the U.S. economy for a while.”

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