- The US economy grew faster than expected in the first quarter, according to an advance estimate of gross domestic product from the Commerce Department.
- But GDP growth early this year slowed from the fourth quarter of 2017 as consumers spent less.
- Spending surged late last year amid the holidays and as people continued to replace items damaged by hurricanes in the summer.
- Seasonal-adjustment glitches tend to depress first-quarter growth relative to the rest of the year.
The US economy grew faster than expected in the first quarter, according to the Commerce Department’s initial estimate of gross domestic product released Friday.
GDP, the value of all goods and services produced within the US, increased at an annualized rate of 2.3%, down from 2.9% in the fourth quarter. Economists polled by Bloomberg had forecast 2% growth.
Consumer spending, the biggest contributor to the economy, slowed to a 1.1% growth rate from 4% in the fourth quarter. But its drag on the economy was partly offset by strong business investment.
According to Pantheon Macroeconomics’ Ian Shepherdson, consumer spending most likely slowed because its surge late last year was unsustainable, as people replaced items destroyed by hurricanes in the summer. Shoes, clothes, and cars were among the items that Americans spent less on in Q1 compared with Q4.
Also, spending slowed, even though there was a 3.4% increase in disposable income – the highest since 2015 – because of the new tax law.
During most of this recovery, first-quarter growth has tended to undershoot the rest of the year because of seasonal-adjustment issues related to how the Bureau of Economic Analysis factors in unusual changes in economic activity. For example, the bureau adjusts for the fact that people tend to spend more around the holidays, so higher consumption in that season doesn’t necessarily reflect an underlying shift in the economy’s health.
The first quarter marked the first time in four quarters that GDP didn’t come close to or exceed President Donald Trump’s 3% target. It was also the first comprehensive reading on the economy since the new tax law went into effect in January.
Though the full impact of the tax law and higher government spending hasn’t yet materialised, many economists have said the administration’s 3% target is unsustainable, partly because productivity growth has slowed over the years.
First-quarter GDP will be revised two more times over the next two months as the BEA gathers more complete data.
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