US economy expands in first quarter; growth details weak

WASHINGTON: US economic growth accelerated in the first quarter, but the burst in growth was driven by a smaller trade deficit and the largest accumulation of unsold merchandise since 2015, temporary boosters that are seen weighing on the economy later this year.
The surge in growth reported by the Commerce Department put to rest fears of a recession, that were stoked by a brief inversion of the US Treasury yield curve in March. But it also exaggerates the health of the economy as consumer and business spending slowed sharply, and investment in homebuilding contracted for a fifth straight quarter.
Gross domestic product increased at a 3.2 per cent annualised rate in the first quarter, the government said in its advance GDP report. Growth was also driven by increased investment in roads by local and state governments.
“The gain in first-quarter GDP would seem to make a mockery of claims that the US economy is slowing as the fiscal stimulus fades,” said Paul Ashworth, chief US economist at Capital Economics in Toronto. “Looking beyond the headline number, however, there are plenty of causes for concern.” The economy grew at a 2.2 per cent pace in the October-December period. Economists had forecast GDP increasing at a 2.0 per cent rate in the first three months of the year. The economy will mark 10 years of expansion in July, the longest on record.
President Donald Trump cheered the economy’s performance in the first quarter. “This is far above expectations or projections,” Trump tweeted.
The White House has sought to boost growth through an array of policies, including a $1.5 trillion tax cut package passed in December 2017. Economists believe the fiscal stimulus, which also included more government spending, peaked in the third quarter.
They expect GDP to slow this year, with annual growth forecast around 2.5 per cent, below the Trump’s administration’s 3 per cent target. The economy missed the growth target in 2018.
Excluding trade, inventories and government spending, the economy grew at only a 1.3 per cent rate in the first quarter, the slowest since the second quarter of 2013. This measure of domestic demand increased at a 2.6 per cent pace in the October-December quarter.
A gauge of inflation tracked by the Federal Reserve increased at a 1.3 per cent rate last quarter. The Federal Reserve policymakers are likely to shrug off the last quarter’s growth spurt and focus on the weak domestic demand and inflation when they meet next week. — Reuters