Disappointing days: US growth hits three-year low at 0.7%
WASHINGTON: US growth slid to its lowest level in three years in the first quarter, a disappointing start to Donald Trump’s presidency on the eve of his first 100 days in office.
GDP increased only 0.7 per cent in the first three months of the year as consumer spending and government expenditures tumbled to their lowest levels in years, the Commerce Department reported on Friday in its preliminary data.
Though only slightly below the 0.8 per cent increase in the same quarter of last year, the result was down sharply from the 2.1 per cent expansion seen in the fourth quarter of 2016.
It was well below analyst expectations for 1.1 per cent GDP growth.
The last time growth in the first quarter was more disappointing was the 1.2 per cent drop in 2014.
Trump, who hits his first 100 days in office Saturday, rose to power on a message of nationalist economic revival.
He has also taken credit for increased consumer and business confidence, growing employment and record gains for stocks in recent months.
But, “Just because people feel happy doesn’t mean they will act on those feelings, and they clearly didn’t during the first quarter,” economist Joel Naroff said in a commentary on the report.
The White House has been promising a return to three per cent economic growth, which it says will generate the revenues needed to pay for the multi-trillion dollar tax cuts unveiled this week.
But economists question to likelihood the economy can — or should — grow that fast, especially without fuelling high inflation.
But the GDP report was with record lows.
Consumer spending fell to its lowest level in nearly eight years, adding only 0.3 per cent, with spending on services replete at their lowest in four years, and durable goods orders their lowest since 2011, as auto sales fell 0.45 per cent.
Defence spending contracted by four per cent, its lowest pace in nearly three years, helping drive down overall government expenditures by 1.7 per cent, the lowest quarterly result in almost four years.
Spending on non-durable goods also contracted 2.5 per cent, the lowest reading since 2011.
Economists note that first quarters in recent years have trended below average.
Growth has averaged one per cent in first quarters over the last seven years, well below average growth in other quarters, according to Jim O’Sullivan of High Frequency Economics.
In addition, preliminary estimates of GDP are subject to revisions of an average of 0.6 points.
Analysts also cautioned that the most recent numbers may have suffered some distortion, with a rebound likely in the next quarter.
Unseasonably warm weather in the first two months of the year drove down spending on utilities, and delayed tax refunds also put less cash in consumers’ pockets, all of which weighed on consumption.
Ian Shepherdson of Pantheon Macroeconomics said if these distortions were excluded, growth would probably have been closer to two per cent.
He said he expects three per cent growth in the second quarter “as the statistical and weather issues unwind.”
Business investments were a bright spot, increasing 4.3 per cent for the quarter.
But that was a significant slowdown from the brisk 9.4 per cent in the prior quarter.
A recovery in oil prices helped sustain growth in this category, with mining, exploration, shafts and wells skyrocketing by 449 per cent, an alltime record, up from 23.7 per cent in the prior quarter.