U.S. first quarter GDP grew at 0.7%, hits three year low
The U.S. 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 percent 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 percent annual rate also as the government further cut defense 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 labor 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 U.S. Treasuries were narrowly mixed. The dollar was little changed while U.S. stocks were trading marginally lower.
President Donald Trump has pledged to raise annual growth to 4 percent 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 percent from 35 percent, but offered no details.
WAGE GROWTH ACCELERATING
Economists are skeptical that fiscal stimulus, if it materializes, will fire up the economy given weak productivity and labor shortages in some areas. They see growth just above 2 percent this year.
