Saskatoon StarPhoenix

Consumer spending slows down growth in U.S. economy

- MARTIN CRUTSINGER The Associated Press

WASHINGTON The U.S. economy turned in the weakest performanc­e in three years in the January-March quarter as consumers sharply slowed their spending. The result fell far short of U.S. President Donald Trump’s ambitious growth targets and underscore­s the challenges of accelerati­ng economic expansion.

The gross domestic product, the total output of goods and services, grew by just 0.7 per cent in the first quarter following a gain of 2.1 per cent in the fourth quarter, the Commerce Department reported Friday.

The slowdown primarily reflected slower consumer spending, which grew at a seasonally adjusted annual rate of 0.3 per cent after a growth rate of 3.5 per cent in the fourth quarter. It was the poorest quarterly showing in more than seven years.

Despite the anemic first-quarter performanc­e, the U.S. economy’s prospects for the rest of the year appear solid.

Growth is expected to be fuelled by a revival in consumer spending, supported by continued strong job growth, accelerati­ng wage gains and record stock levels.

Weakness in the first quarter followed by a stronger expansion in the spring has become a pattern in recent years. The government’s difficulty with seasonal adjustment­s for the first quarter has been a chronic problem and may have shaved as much as one percentage point off growth this year.

The sharp slowdown in consumer spending in the first quarter was attributed to a collection of temporary factors: warmer weather, which shrank spending on heating bills, a drop-off in auto sales after a strong fourth quarter and a delay in sending out tax refund cheques, which also dampened spending.

Sal Guatieri, senior economist at BMO Capital Markets, said he expected consumer and government spending to bounce back, leading to a much stronger second quarter.

“Still, the report will mark a rough start to the administra­tion’s high hopes of achieving 3 per cent or better growth, not the kind of news it was looking for to cap its first 100 days in office,” Guatieri said in a note to clients.

Trump had repeatedly attacked the weak GDP rates during the campaign as an example of the Obama administra­tion’s failed economic policies. He said his program of tax cuts for individual­s and businesses, deregulati­on, and tougher enforcemen­t of trade agreements would double growth to four per cent or better.

In unveiling an outline of the administra­tion’s tax proposals on Wednesday, Treasury Secretary Steven Mnuchin said he believed growth above three per cent would be achievable.

Many economists are more skeptical. They are forecastin­g growth of this year around 2.2 per cent. That would be an improvemen­t from last year’s 1.6 per cent, the weakest showing in five years, but far below Trump’s goal. Many analysts believe that the impacts of Trump’s economic program will not be felt until 2018 because they are not expecting Congress to approve some version of Trump’s tax program until late this year.

On the positive side, business investment rose at a 9.4 per cent rate, helped by a record surge in spending in the category that tracks spending in the energy sector. This category had seen sharp cutbacks in recent quarters reflecting reductions in exploratio­n and drilling as energy prices declined. Housing constructi­on was also strong, growing at a 13.7 per cent rate, the fastest pace in nearly two years.

Trump contended that “trade deficits hurt the economy very badly.” For the first quarter, trade was actually a small positive after a major drag in the fourth quarter.

Part of the problem for the administra­tion is that its efforts to boost the economy are coming after the economic expansion has been underway for nearly eight years. At this point in a recovery, stimulus measures tend to have less impact. The Federal Reserve, in fact, has begun raising interest rates to ensure that the tight job market doesn’t trigger high inflation pressures.

For now, analysts say they think Trump’s stimulus efforts and the Fed’s gradual tightening can coexist. Yet they also caution that the Fed may eventually raise rates to a point where they will begin to constrain growth, making it harder for Trump to achieve his GDP goals.

 ?? STEPHANIE KEITH/BLOOMBERG FILES ?? Slower consumer spending, the poorest quarterly showing in more than seven years, was a drag on the U.S. economy. The GDP grew by just 0.7 per cent in the first quarter.
STEPHANIE KEITH/BLOOMBERG FILES Slower consumer spending, the poorest quarterly showing in more than seven years, was a drag on the U.S. economy. The GDP grew by just 0.7 per cent in the first quarter.

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