USA economy grew modestly to start 2018

The year-over-year numbers are better than the quarter-over-quarter figures, annualized as the quarter over quarter pick up seasonal factors not smoothed out and tend to distort the overall progress of the economy.

And while the GDP is down this quarter, due in part to weak consumer spending, it's still the highest growth of any January-March period in three years.

But his administration has fallen victim to a problem that afflicted the Obama administration before it - unusually slow first quarters that helped keep annual economic growth below 3 percent.

The figure was lower than the fourth quarter, when GDP grew at a 2.9%, and the third quarter, which saw an increase of 3.2%.

It's common for economic growth to slow in the first quarter and then accelerate later in the year. Construction-equipment maker Caterpillar, a bellwether for growth, said this week that its first-quarter adjusted profit per share "will be the high water mark for the year", sending its shares down the most since mid-2016. These data were mostly consistent with that optimism, as business spending was one of the larger bright spots in the first quarter GDP data. The labor market is near full employment and both business and consumer confidence are strong.

The 2.3% pace of GDP growth still is faster than what the Federal Reserve sees as the economy's long-term potential rate, and officials previously have said they view the first-quarter slowdown as transitory, with the economy poised to reach a milestone in May - the second-longest expansion on record.

According to Reuters, while despite the weak start to the year, the lower corporate and individual tax rates should lift annual economic growth to the administration's 3% target.

Growth in consumer spending, which accounts for more than two-thirds of USA economic activity, braked to a 1.1 percent rate in the first quarter.

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.

"With consumption growth likely to bounce back and fiscal stimulus about to kick-in big-time, there are probably more upside than downside risks", Brian Coulton, chief economist at Fitch Ratings, said in an email. Households also boosted savings, which bodes well for a pickup in spending. Still, the January-March increase came in better than expected, supporting hopes for a solid rebound for the rest of the year. Domestic demand increased at a 1.7 percent rate, the slowest in two years, after rising at a brisk 4.8 percent pace in the final three months of 2017. In my testimony before the Joint Economic Committee earlier this month, I said that tax reform should lead to $55 billion in additional fixed investment in manufacturing this year, with the sector adding at least 100,000 more workers. Investment in new structures almost doubled to 12.3 percent. The core PCE price index rose at a 1.9 percent pace in the fourth quarter. "So here's to 3.7% growth in 2Q!"

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

At the same time, Boeing said it's seeing solid global demand, while United Parcel Service said the US economy is showing "healthy fundamentals".

  • Eleanor Harrison