United States economic growth slows to 2.3% in Q1

Analysts expected consumer spending growth to slow in the first quarter curbing overall economic growth

Consumer spending, which accounts for more than two-thirds of the economy, grew only 1.1% last quarter, its weakest pace in almost five years.

Positive trade data and an increase in inventories were two major factors behind the beat in first quarter growth; according to some economists, these factors are not sustainable in the long term. This was slightly better than the consensus estimate of around 2 percent, even as real GDP eased from 2.9 percent growth in the fourth quarter data. The first-quarter 2018 reading was the slowest since 2013 and reflected a decline in vehicle, clothing and footwear purchases.

The first quarter tends to be weaker.

Friday's report is the government's first of three estimates of first-quarter GDP.

The slight pullback in the pace of business investment from the fourth quarter could have been due to the strong incentives businesses had to invest in the fourth quarter of a year ago before the corporate tax rate declined from 35% to 21%.

The latest Commerce report was the first since President Trump's tax cuts, including a reduction in corporate taxes created to boost investments and jobs, took effect on January 1.

A separate Labor Department report Friday showed that a broad measure of employee compensation rose more than expected in the first quarter, adding to signs that the tight job market is supporting a pickup in pay.

While the administration expects the economy to grow at rates of 3 percent for the rest of this decade, private analysts are less optimistic.

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Government spending slowed to a 1.2 percent gain from 3 percent, as both federal and state and local outlays cooled. Indeed, durable goods spending fell by an annualized 3.3 percent in the first quarter, with nondurable goods demand up just 0.1 percent.

Inflation also increased by a 2.7 percent annual rate, bringing the year-over-year rate to 1.8 percent, from 1.7 percent. In five of the past eight years, the first quarter turned out to be the worst one of the year. Economists had expected GDP to increase by about 2.0%. Delayed tax refunds may have held down consumer spending, which is likely to rebound in the second quarter as incomes rise, he said. The Congressional Budget Office recently estimated 3.3 percent growth this year, dropping to 2.4 percent in 2019 and 1.8 percent the following year. Core prices - which exclude food and energy - rose at a 2.5% rate.

The slowdown in US consumer spending reflected slower auto sales as well as purchases on clothing, footwear, food and beverages, according to the report.

"The first quarter has been persistently weak in recent years", David Sloan, senior economist at Continuum Economics, said before the report.

Residential investment was also flat in the first three months of the year, possibly due to winter storms and higher short-term interest rates, according to analysts.

With consumer spending slowing, inventories increased at a $33.1 billion rate in the first quarter, up from a $15.6 billion pace in the prior period.

Spending on new equipment also grew by 6.1 percent, a potentially worrisome pop if the machinery is meant to automate jobs.

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