US Economy Grew at 2.3% Rate in First Quarter

Analysts expected consumer spending growth to slow in the first quarter curbing overall economic growth

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.

An increase in business spending, however, helped offset consumer lulls. The decline in spending on vehicles and parts subtracted 0.42 percentage point from growth.

The slowdown in consumer spending in the first quarter offset more positive developments such as continued momentum in business investment and a rise in US exports. That's higher than economists had predicted, and a slight slowdown from the 2.9 percent rate estimated for the prior quarter. The Federal Reserve has reacted to upward inflationary pressure so far by moving closer to three rather than two rate increases during the rest of 2018.

While GDP growth was the best for any January-March period since 2015, it's a step down from three quarters of GDP growth above or near 3%, and a reminder that the first quarter remains plagued by data quirks.

America's economic growth slowed at the beginning of 2018 as household spending stalled in spite of recent tax cuts.

"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. The U.S. economy grew at a steady 2 percent rate over the past decade. Excluding food and energy prices, the PCE price index increased 2.5 percent.

The report said the consumer sentiment index for April was upwardly revised to 98.8 from the preliminary reading of 97.8.

The slowdown in US consumer spending reflected slower auto sales as well as purchases on clothing, footwear, food and beverages, according to the report.

A separate report Friday found that US private sector workers saw their wages go up 1 percent in the first quarter, the biggest quarterly gain in 11 years, a sign that the tight job market is beginning to lift wages.

Muted household spending contributed to the drop-off.

"It is increasingly hard to argue that the 2 percent inflation target hasn't already been breached", said Steven Blitz, chief US economist at TS Lombard in NY. The expected cooling in equipment investment partly reflects a fading boost from a recovery in commodity prices.

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.

Amid signs of labor market buoyancy, the Fed also raised its forecast, predicting the economy would grow this year at an annual rate of 2.7 percent, up from 2.5 percent in December. Spending is, however, expected to rebound in the second quarter after the U.S. Congress recently approved more government spending.

Over the past four quarters, GDP growth has averaged 2.9 percent, just below the 3 percent projection the Trump administration used in its budget for next year.

With consumer spending slowing, inventories probably accumulated in the first quarter.

Trade was likely a drag on GDP growth for a second straight quarter after royalties and broadcast license fees related to the Winter Olympics boosted imports.

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