US economy slackens less than expected

28/05/2017 02:00 AST

The US economy slowed less than initially thought in the first quarter, but softening business investment and moderate consumer spending are clouding expectations of a sharp acceleration in the second quarter.

Gross domestic product increased at a 1.2 per cent annual rate instead of the 0.7 per cent pace reported last month, the Commerce Department said on Friday in its second GDP estimate for the first three months of the year.

That was the worst performance in a year and followed a 2.1 per cent growth rate in the fourth quarter.

“Economic indicators so far aren’t entirely convincing on a second-quarter bounce in activity and show a US economy struggling to surprise on the upside,” said Scott Anderson, chief economist at Bank of the West in San Francisco. The first-quarter weakness is a blow to President Donald Trump’s ambitious goal to sharply boost economic growth.

During the 2016 presidential campaign Trump had vowed to lift annual GDP growth to 4 per cent, though administration officials now see 3 per cent as more realistic.

Trump has proposed a range of measures to spur faster growth, including corporate and individual tax cuts. But analysts are skeptical that fiscal stimulus, if it materializes, will fire up the economy given weak productivity and labour shortages in some areas.

“If the economy is going to grow at 3 per cent for as long as the eye can see, businesses better spend lots of money on capital goods. That is not happening,” said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania.

The economy’s sluggishness, however, is probably not a true reflection of its health, as first-quarter GDP tends to underperform because of difficulties with the calculation of data that the government is working to resolve.

The government raised its initial estimate of consumer spending growth for the first quarter, but said inventory investment was far smaller than previously reported. The trade deficit also was a bit smaller than estimated last month.

Economists had expected that GDP growth would be revised up to a 0.9 per cent rate. Despite the tepid growth, the Federal Reserve is expected to raise interest rates next month.

The Gulf Today