US GDP growth slows in Q1 to 2.2%

Washington (AFP) –


The US economy expanded at a slightly slower pace in the first three months of the year as a drop in home buying offset an increase in business investment, the Commerce Department said Wednesday.

More complete data on the economy show Gross Domestic Product increased by 2.2 percent in the first quarter, a tenth of a percent lower than in the preliminary report last month.

That was still significantly slower than the 2.9 percent growth seen at the end of 2017, and further from the White House goal of three percent expansion, despite the tax cut approved in December that was expected to juice the economy.

That slowdown was attributed to a decline in exports, household spending and government spending at all levels, the report said.

Economists had expected GDP to remain steady at 2.3 percent as reported in the preliminary estimate.

Still, first quarters often tend to be slower than other periods, and the data will be revised once more next month.

Jim O'Sullivan, of High Frequency Economics, noted that growth over the last eight years has averaged just one percent in the first quarters, "well below the 2.5 percent average for all other quarters."

The two percent decline in residential fixed investment -- essentially home buying -- was a significant contributor to the downward revision in the second GDP estimate, even though it was offset by a big increase in business investment.

Slower household spending on services, including health care, also fed into the slower GDP. But that was offset by higher spending on goods, notably used vehicles.

Meanwhile imports, which subtract from growth, were slightly higher than first estimated.

Despite the weaker growth data, analysts said they expect the economy to pick up later in the year.

"Consumer spending was off to a slow start in 2018 but we think that solid income growth, tax cuts, and elevated stock prices and home values will support a rebound in Q2," Oxford Economics said in an analysis.

Barclays agreed, saying, "we view this soft patch as transitory, and expect a rebound in growth in Q2 and Q3 as fiscal stimulus kicks in."

- Inflation outlook -

However, Oxford noted factors that could curb growth as well.

"Higher interest rates, firming inflation and rising gas prices may constrain spending this summer," Oxford said.

A closely-watched measure of inflation in the GDP data, the "core" Personal Consumption Expenditures price index, which strips out volatile food and energy prices, was revised down to 2.3 percent from 2.5 percent, which was the highest in more than 10 years. Even the revised figure was the highest in seven years.

That will ease some of the concern that the Federal Reserve might feel the need to raise interest rates at a faster pace if growth speeds up and inflation accelerates, a prospect that has spooked investors in recent weeks.

The Fed is widely expected to raise the benchmark interest rate in mid-June for the second time this year, and many economists now expect the central bank to hike a total of four times this year to prevent prices from rising too far past the two percent goal.

But the Fed has signaled clearly that it will tolerate inflation slightly above two percent for some time.