U.S. economic growth weakened to 0.7 per cent in first quarter
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 underscores the challenge facing President Donald Trump in achieving his ambitious economic growth targets.
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 by just 0.3 per cent after a 3.5 per cent gain in the fourth quarter. It was the poorest showing in more than seven years.
Economists attributed the sharp slowdown in consumer spending to shrinking utility bills due to warmer weather, a drop-off in auto sales and a delay in sending out tax refund checks by the IRS, 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.
Averaging the two quarters, they forecast growth of around 2 per cent for the first half of this year. That would be in line with the mediocre performance of the eight-year economic expansion, when growth has averaged just 2.1 per cent, the poorest showing for any recovery in the post-World War II period.
Trump 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 4 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 3 per cent would be achievable.
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Private 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.
The GDP report released Friday was the first of three estimates the government will make of first quarter growth.
The 0.7 per cent increase was the worst showing since GDP contracted by 1.2 per cent in the first quarter of 2014.