The Economy

U.S. Economic Growth Slows to 0.7% in Q1

The sluggish GDP report "marks a rough start to the [Trump] administration's high hopes of achieving 3 percent or better growth."
Matthew HellerMay 1, 2017
U.S. Economic Growth Slows to 0.7% in Q1

Dashing hopes for a “Trump bump,” the U.S. economy grew at its slowest pace in three years during the first quarter amid a sharp dropoff in consumer spending.

In its first of three estimates, the Labor Department said gross domestic product increased at an annualized rate of 0.7%, missing expectations for a 1.2% pick up and well short of President Trump’s 4% target.

Consumer spending, which accounts for approximately 71% of overall economic growth in the U.S., grew at a slight 0.3% rate, down sharply from the 3.5% pace it notched in the final three months of 2016.

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“It marks a rough start to the administration’s high hopes of achieving 3 percent or better growth; this is not the kind of news it was looking for to cap its first 100 days in office,” Sal Guatieri, a senior economist at BMO Capital Markets in Toronto, told Reuters.

As The New York Times reports, most economists on Wall Street are looking for a rebound over the rest of 2017, with growth rising to about 3% in the current quarter. Wage growth in the first quarter was the fastest in 10 years as the labor market nears full employment and business investment on equipment was the strongest since the third quarter of 2015.

Also indicating the economy’s underlying strength, consumer and business confidence are near multi-year highs.

“Typically there’s a high correlation between sentiment readings and what transpires by way of spending…but in the first quarter, it didn’t manifest quite the same,” Mark Luschini, chief investment strategist at Janney Montgomery Scott, told Fox Business.

The decline in consumer spending was particularly notable for long-lasting goods like computers and kitchen appliances, automobiles, clothing, and energy. Other headwinds in the first quarter likely also included weather-related issues and delayed tax refunds.

“We see ebbs and flows in consumer spending, and it’s still on an upward trend,” said Scott Anderson, chief economist a Bank of the West in San Francisco.

But Stephanie Pomboy, founder of independent economics consulting firm MacroMavens, said the rising cost of necessities like health care, housing and education is crowding out discretionary spending for middle-class Americans.