WASHINGTON: The US economy grew at its weakest pace in three years in the first quarter as consumer spending almost stalled, but a surge in business investment and wage growth suggested activity would regain momentum as the year progresses.
The soft patch at the start of the year is bad news for the Trump administration’s ambitions to significantly boost growth.
“It marks a rough start to the administration’s high hopes of achieving 3 per cent or better growth; this is not the kind of news it was looking for to cap its first 100 days in office,” said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto.
Gross domestic product increased at a 0.7 per cent annual rate also as the government further cut defence spending and businesses spent less on inventories, the Commerce Department said on Friday in its advance estimate.
That was the weakest performance since the first quarter of 2014. The pedestrian first-quarter growth pace is, however, not a true picture of the economy’s health.
Wage growth in the first quarter was the fastest in 10 years as the labour market nears full employment and business investment on equipment was the strongest since the third quarter of 2015.
Also underscoring the economy’s underlying strength, consumer and business confidence are near multi-year highs. First-quarter GDP tends to underperform because of difficulties with the calculation of data that the government has acknowledged and is working to rectify.
Prices for US Treasuries were narrowly mixed.
The dollar was little changed while US stocks were trading marginally lower.
President Donald Trump has pledged to raise annual growth to 4 per cent through infrastructure spending, tax cuts and deregulation.
On Wednesday, the White House proposed a tax plan that includes cutting the corporate income tax rate to 15 per cent from 35 per cent, but offered no details.
Economists are sceptical that fiscal stimulus, if it materializes, will fire up the economy given weak productivity and labour shortages in some areas.
They see growth just above 2 per cent this year.
“The cupboard is bare when companies need to hire skilled labour. You can’t build American if you can’t find any American workers to put on your shop floor,” said Christopher Rupkey, Chief Economist at MUFG Union Bank in New York.— Reuters
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