U.S. business spending on equipment cooling; labor market strong

U.S. business spending on equipment cooling; labor market strong

U.S. business spending on equipment cooling; labor market strong

The U.S. economy grew at an annual rate of 2.3 percent in the first quarter of the year, lower than the 2.9-percent growth rate in the previous quarter, the U.S. Commerce Department reported on Friday. Most experts view the setback as temporary against the milieu of a tightening labor market along with strong consumer confidence and business growth.

Service-sector spending, on the other hand, rose modestly, up 2.1 percent, adding 0.97 percentage points to headline growth.

The increase in first-quarter real GDP reflected positive contributions in several areas, including exports, private inventory investment and government spending, according to the report. The median forecast of economists surveyed by Bloomberg called for a 2 percent gain.

Due to what is known as a "seasonal quirk", it is not unusual for first-quarter growth to be sluggish and possibly not an accurate reflection of the economy.

In the appendix of the CBO report, it shows that, before accounting for economic growth, the tax cuts Trump signed into law late a year ago would cut federal revenues by $1.69 trillion from 2018-2027.

"Earnings have stabilised, and the benefits of last year's tax reforms are starting to materialise, though the actual spending of money will take time", Curtin added. Excluding food and energy prices, the PCE price index increased 2.5 percent.

Federal Reserve officials are likely to shrug off the first-quarter performance.

Minutes of the March 20-21 meeting published earlier this month showed policymakers "expected that the first-quarter softness would be transitory", citing "residual seasonality in the data, and more generally to strong economic fundamentals".

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The slowdown in USA consumer spending reflected slower auto sales as well as purchases on clothing, footwear, food and beverages, according to the report. The price index for personal-consumption expenditures increased at a 2.7% pace in the first quarter, matching the fourth quarter's pace.

"The report was good but not great", said Gus Faucher, chief economist at PNC.

It's not a bad report, and this quarter has chronic issues with metrics.

Consumer spending rose by 1.1% in the first quarter, although that reflects a substantial slowdown from the 4.0% spike seen in the fourth quarter.

"Right now, consumers are cautious", Navy Federal Credit Union economist Robert Frick said in a note to clients, adding the drop in durable goods spending "points to consumers avoiding big ticket items to conserve cash". The cooling in equipment investment comes as the stimulus from a recovery in commodity prices is fading. A narrowing of the trade deficit added 0.2 percentage points to growth. Investment in new structures almost doubled to 12.3 percent.

Trump promised during his 2016 campaign to bring about sustained 4 percent or higher GDP growth and create tens of millions of new jobs within his first term in office.

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.

Nonresidential fixed investment, or spending on equipment, structures and intellectual property, increased at a still-solid 6.1 percent annualized pace, contributing 0.76 percentage point to growth.

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