US GDP blows past estimates despite slowdown in consumer spending

U.S. economic growth slowed to 2.3% pace in first quarter — better than expected

In addition to the slowdown in consumer spending, the USA first-quarter GDP report showed cooling in business-equipment spending and residential investment, with the government citing a downturn in brokers' commissions on home sales.

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.

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%. First-quarter growth is usually slower than the rest of the year, and often ends up being revised higher when it's seasonally adjusted. Today's growth reading is the first... First-quarter GDP is usually impacted by seasonality.

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%.

James Knightley, Chief International Economist at ING, noted the first quarter is typically the worst quarter for GDP growth, despite seasonal adjustment.

According to surveys, the tax cuts did not reflect on many workers' paychecks until late in the first quarter.

Acknowledging that forecasters expected economic growth to slow in the first quarter, Hassett said he remained confident the US still would hit 3 percent growth for all of 2018.

"It's kind of ironic that we've had a slowdown in consumption and investment just as the tax cuts are taking effect", said Michael Pearce, a senior economist at Capital Economics.

Businesses buying less equipment also held back the rate of growth. The Federal Reserve expects economic output to expand by 2.7% for the year as a whole. 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. The PCE price index increased 2.7 percent, the same increase as in the fourth quarter. Growth would be at least 3 percent a year through 2024. Investment in nonresidential structures, including office buildings and factories, rose 12.3 percent, the most in a year.

But Trump and Republicans strongly criticized former President Obama for not having a single calendar year in which economic growth hit 3 percent.

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 housing sector stagnated in early 2018 as residential investment was flat, a development that likely reflected higher short-term interest rates and tax-code changes that diminished decades-old perks that encouraged homeownership. Spending is expected to accelerate in the second quarter after the U.S. Congress recently approved more government spending.

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.

GDP in the United Kingdom grew by just 0.1% for the first quarter as uncertainty over the UK's exit from the European Union next year crimped business investment and weighed on construction.

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