U.S. economy grew at 3.2 per cent in first quarter

WASHINGTON — The U.S. economy grew at a solid 3.2 per cent annual rate in the first three months of the year, a far better outcome than expected, overcoming a host of headwinds including global weakness, rising trade tensions and a partial government shutdown.

The advance in the gross domestic product, the broadest measure of economic health, marks an acceleration from a 2.2 per cent gain in the previous October-December period, the Commerce Department reported Friday. However, about half the gain reflected two factors not expected to last – a big jump in stockpiling by businesses and a sharp contraction in the trade deficit.

Still, the GDP gain surpassed the three per cent bar set by U.S. President Donald Trump as evidence his economic program is working. Trump is counting on a strong economy as he campaigns for re-election.

In a tweet, Trump called the 3.2 per cent growth “far above expectations.”

Speaking to reporters before leaving Washington for a speech to the National Rifle Association, Trump termed the GDP figure an “incredible number” and said,

“Our economy is doing great. Number One in the world.”

It was the strongest first quarter growth rate since 2015. In recent years, GDP has been exceptionally weak in the first quarter. There had been fears growth could dip below one per cent this year due to a variety of adverse factors such as the December stock market nosedive, rising weakness in key economies overseas, the U.S. trade war with China and a 35-day partial government shutdown that ended in January.

But the economy shrugged off those concerns, helped by an announcement in early January from the Federal Reserve that after raising rates four times last year, it was declaring a pause on further rate hikes. That spurred a stock market rebound by easing concerns that the central bank might overdo its credit tightening and send the country into a recession.

In the first quarter, inventory rebuilding added 0.7 percentage point to growth, while a falling trade deficit boosted growth by a full percentage point. Analysts think both of those factors will reverse in the current quarter. Analysts at Macroeconomic Advisers said they expect the U.S. GDP will slow to a 1.8 per cent rate in the second quarter.

“The drivers of growth in the first quarter are unlikely to persist,” said Gus Faucher, chief economist at PNC.

Consumer spending, which accounts for 70 per cent of economic activity, slowed to growth at a rate of just 1.2 per cent in the first quarter.Spending on durable goods fell at a rate of 5.3 per cent, the biggest decline in a decade.