USA economy grew modestly to start 2018

USA economy grew modestly to start 2018

On the worldwide front, net exports swung back to be a positive contributor in the first quarter, adding 0.20 percentage points, after subtracting 1.16 percentage points from GDP in the fourth quarter.

The results were slightly above Wall Street analysts' forecasts of 2 percent annual growth rate and represented an expected slowing from the fourth quarter's 2.9 percent growth rate.

USA economic growth slowed in the first quarter, largely the result of a deceleration in consumer spending that hit even though tax cuts fattened the wallets of many American households.

Inflation also increased by a 2.7 percent annual rate, bringing the year-over-year rate to 1.8 percent, from 1.7 percent.

First-quarter GDP figures are typically lower because of seasonal adjustments, as was the case with the first-quarter of 2016 and 2017. "Tax cuts will support consumer spending and business investment", while "trade is certainly a risk".

Nancy Curtin, chief investment officer at Close Brothers Asset Management, was quoted by the BBC as saying: "These weaker first quarter growth figures are unsurprising in the context of historic seasonal weakness of this quarter in the U.S., exacerbated by severe weather".

Economists believe the combination of tax cuts and a tight labor market, which encourages employers to give more favorable pay and benefits to attract and retain workers, should boost spending in the coming months.

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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.

Since the end of the Great Recession in mid-2009, the economy has turned in modest quarterly growth rates averaging just 2.2 percent, the weakest expansion in the post-World War II period.

Meanwhile net exports added 0.20 percentage point to growth. The GDP estimate is the first of three for the quarter, with the other releases scheduled for May and June when more information becomes available.

On the other hand, the growth was indeed stronger than expected.

Government spending slowed during the quarter, adding 0.2% to growth. The U.S. central bank raised interest rates last month in a nod to the strong labor market and economy, and forecast at least two more rate hikes this year.

"The trend is probably better than what you're seeing", said economist Jim O'Sullivan of High-Frequency Economics. As treasury rates move north of three percent, mortgage rates will also rise, dissuading potential home buyers. A measure of inflation, tied to consumer spending and excluding volatile food and energy costs, advanced at a 2.5% annualized pace, the fastest since 2011, adding to signs that price gains are picking up.

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 on durable goods like cars surged in the final months of 2017, possibly replacing those lost in the storms, and then receded in the first quarter. Nonresidential fixed investment contributed 0.76 percentage points to top-line growth, with positive spending on inventories adding another 0.43 percentage points.

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