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US GDP growth cools to 2.3%

US GDP growth cools to 2.3%

First-quarter GDP tends to be sluggish because of a seasonal quirk.

USA economic growth cooled last quarter as consumers pulled back after outsize spending in the prior period, though solid business investment cushioned some of the weakness and employee-compensation costs accelerated amid a tight job market. Economists widely anticipated the economy to grow at 2 percent, a downgrade from the fourth quarter of 2017 when the economy grew at 2.9 percent.

The U.S. economy slowed to a moderate 2.3 percent annual growth rate in the first quarter as consumer spending turned in the weakest performance in almost five years. That's slower than the 2.9% pace in the fourth quarter of 2017. From 2007-16, first-quarter growth has averaged 1.3 percentage points below growth for the year as a whole, according to a July Federal Reserve study. The data comes after the fourth quarter past year grew 2.9%. Economists polled by Reuters had forecast output rising at a 2.0 percent rate in the January-March period. In addition, surveys suggested many workers did not see the tax cut boost to their paychecks until late in the quarter.

Acknowledging that forecasters expected economic growth to slow in the first quarter, Hassett said he remained confident the US still would hit 3 percent growth for all of 2018. The U.S. central bank raised interest rates last month in a nod to the strong labor market and economy, and forecast at least two rate hikes this year.

"Tax cuts and government spending increases should lead to better overall economic activity", said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania.

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"With consumption growth likely to bounce back and fiscal stimulus about to kick-in big-time, there are probably more upside than downside risks", Brian Coulton, chief economist at Fitch Ratings, said in an email. Former Obama economic adviser Jason Furman noted that the first quarter number was boosted by a "volatile inventory buildup" that will not likely be repeated. Private-sector wages and salaries advanced 2.9% from a year earlier, the most of the expansion, after a 2.8% increase.

Current-dollar GDP increased 4.3 percent, or $211 billion, to a $19.9 trillion level. The winter months have been the weakest quarter of the year for several years. The PCE price index increased 2.7 percent, the same increase as in the fourth quarter. Investment in nonresidential structures, including office buildings and factories, rose 12.3%, the most in a year. This was driven in part by a slowdown in discretionary categories like shoes, apparel and cars, as well as food and beverages.

Government spending grew at a 1.2 percent rate, slowing from the fourth quarter's 3.0 percent pace. Residential investment increased at a 12.8 percent rate in the October-December period.

Spending on new equipment also grew by 6.1 percent, a potentially worrisome pop if the machinery is meant to automate jobs.

The program, which offers speedier delivery of purchases and other perks, will cost $119 a year in the USA beginning May 11, up from the $99-a-year rate available since 2014, the company disclosed Thursday on a conference call with financial analysts after reporting quarterly earnings.

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