Q1 GDP growth down but better-than-expected at 2.3%

Washington

GROWTH in the world's largest economy slowed sharply in the first three months of the year amid a decline in exports, consumer spending and home buying, the Commerce Department announced on Friday.

But the result was better than feared as economists were expecting the first quarter to be even weaker, following the trend of recent years, despite the boost from sweeping tax cuts in December.

GDP expanded by 2.3 per cent in the January-March period, according to a preliminary estimate, down from 2.9 per cent in the final months of 2017, according to the report. But growth was two tenths of a point better than a consensus forecast among economists.

The outcome - which is subject to significant revision in the coming months - suggested that the current economic expansion was uninterrupted, which could offer the White House a measure of relief that the more dire predictions of weaker growth had not been borne out.

Economists say statistical anomalies may account for some of the weakness, meaning growth in the first quarter may have been stronger than it appeared.

President Donald Trump has vowed to returned the United States to 3 per cent annual growth or higher, and is banking on a juiced economy to produce higher government revenues and offset the US$1.6 trillion cost of the tax cuts.

Economists say, however, the current pace of growth is likely above potential, making sustained growth of three per cent unrealistic. The Federal Reserve is not expected to raise interest rates at a periodic meeting on monetary policy next week but the overshoot on growth - and signs of rising prices and wages also published Friday - could add to pressure on the central bank to tighten policy more quickly.

Consumer spending had its slowest quarter in more than four years, rising 1.1 per cent, after a jump of four per cent in the prior quarter.

A closely-watched measure of inflation, the "core" Personal Consumption Expenditures price index, which strips out volatile food and fuel prices, had its strongest quarter in more than 10 years, rising 2.5 per cent. That was six tenths faster than the fourth quarter, this put the result above the Federal Reserve's two percent target for the first time in two years.

The Labor Department's Employment Cost Index showed that wages and benefits for civilian workers rose 0.8 per cent in the first three months of the year, marginally faster than expected. Market watchers and economists say it is increasingly likely the Fed will have to raise interest rates a total of four times this year to prevent the long-awaited return of inflation. AFP