WASHINGTON: The US economy expanded at the slowest pace in three years in the first quarter as weak automobile sales and lower home-heating bills dragged down consumer spending, offsetting a pickup in investment led by housing and oil drilling.
Gross domestic product, the value of all goods and services produced, rose at a 0.7% annualised rate after advancing 2.1% in the fourth quarter of last year, according to preliminary Commerce Department data released on Friday in Washington.
Consumer spending, the biggest part of the economy, rose ust 0.3% year-on-year, the worst performance since 2009.
The GDP slowdown was attributed partly to transitory forces such as warm weather and volatility in inventories, which supports forecasts for a rebound as high confidence among companies and consumers and a solid job market underpin growth.
Even so, the weakness in car sales could weigh on expansion, and further gains in business investment could depend on the extent of policy support such as tax cuts.
“There’s reason to think that some of the things that were weak in the first quarter should reverse in the second quarter, in particular consumption and inventories,” said Michael Feroli, chief US economist at JPMorgan Chase. “Labour income is starting to pick up and actually is keeping consumer spending pretty well supported.”
The data are unlikely to dissuade Federal Reserve policymakers from raising interest rates in the coming months. Economists were largely expecting a weak growth figure, calling it a blip and not a sign of stagnation.
Analysts have also pointed to issues with the Commerce Department’s seasonal adjustment of growth data: Since 2000, expansion in the first quarter of each year has averaged 1%, compared with 2.2% for the rest of each year, according to Wells Fargo Securities.
Though the first-quarter figure isn’t a verdict on President Donald Trump’s policies, economists are generally sceptical that growth will reach his goal of 3% to 4% on a sustained basis. Analysts’ estimates call for just 2.2% to 2.3% annual growth through 2019, just above the average pace during the almost eight-year expansion.
During the first quarter, a chief driver of growth was private, fixed non-residential investment, which contributed 1.12 percentage points to expansion, led by a record increase in mining exploration, shafts and wells, a category that includes oil structures. Residential investment added 0.5 points to growth.
The change in inventories, one of the most volatile parts of the GDP calculation, subtracted 0.93 points from growth, following a 1.01% gain. Trade added slightly to growth, as exports increased by more than imports during the quarter.
While some of the slowdown may be temporary, inflation is eating into consumers’ wallets. Real disposable personal income rose at a 1% pace in the first quarter of this year, the weakest since the fourth quarter of 2013.
Even though hiring has been humming along and the jobless rate of 4.5% is the lowest in almost a decade, a sustained pickup in wage growth would help boost consumers’ ability to spend.