US economic growth slowed to its lowest pace in three years during the first quarter, underlining the challenges the Trump administration faces in its pledge to accelerate the economy.
Consumer sentiment about the USA economy remained high in April, even as the Commerce Department said US economic output increased at the slowest pace in three years. A Reuters survey of economists conducted last week forecast GDP rising at a 1.2 percent annual rate, but many economists lowered their estimates after the government on Thursday released advance reports on the goods trade deficit and inventories in March.
All in all, not the kind of news President Donald Trump wanted to hear on the eve of his 100th day in office or after his campaign promises to get the economy growing by 3 percent a year or better.
In recent years, the first quarter has often turned out to be the weakest for the year, reflecting in part problems the government has not been able to resolve in adjusting its figures for normal seasonal changes.
"There's reason to think that some of the things that were weak in the first quarter should reverse in the second quarter, in particular consumption and inventories", Michael Feroli of JPMorgan Chase & Co. said. The economy hasn't fully recovered since the last recession, but over the last couple of years, it has shown improved employment and economic growth.
Defense spending contracted by four percent, its lowest pace in nearly three years, helping drive down overall government expenditures by 1.7 percent, the lowest quarterly result in almost four years.
The White House has said it hopes to boost economic growth to 3%, a figure it won't be able to achieve given its current policy mix, Zandi said.
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Most economists believe the economy is picking up speed.
Unseasonably warm weather in the first two months of the year drove down spending on utilities, and delayed tax refunds also put less cash in consumers' pockets, all of which weighed on consumption. Private domestic investment, a key indicator of future growth, increased at an annualized rate of 4.3% - but that was a drop from last quarter's 9.4%. JPMorgan is forecasting inventories chopping off one percentage point from GDP growth.
Analysts also cautioned that the most recent numbers may have suffered some distortion, with a rebound likely in the next quarter. But that was a significant slowdown from the brisk 9.4 percent in the prior quarter. For the first quarter, trade was actually a small positive after a major drag in the fourth quarter.
Inventories will nearly certainly add to growth in the next two quarters. Manufacturing accounts for a grossly disproportionate share of equipment investment.
Additionally, job gains remain solid, gas prices are low and wage growth has been picking up after years of dormancy.
Details within Friday's report offered a mixed outlook.
The data are unlikely to dissuade Federal Reserve policy makers from raising interest rates in the coming months.