US Q1 economic growth nudged higher by consumer spending, says Commerce Department

PUBLISHED : Friday, 30 June, 2017, 1:29am
UPDATED : Friday, 30 June, 2017, 1:30am

The US economy slowed less than feared in the first quarter due largely to a jump in consumer spending, providing a slightly more encouraging outlook for growth this year.

Gross domestic product increased at a 1.4 per cent annual rate instead of the 1.2 per cent reported last month, the Commerce Department said in its final assessment for the period on Thursday.

The reading was the worst since the second quarter of 2016 but above analysts’ expectations, easing fears the economy had been hobbled at the start of this year. The government had pegged first-quarter growth at a paltry 0.7 per cent in its first estimate in April.

“The upward revision occurred even with a downward revision to the inventory data, which has favourable implications for the adding up of second-quarter growth,” said Daniel Silver, an economist at JP Morgan.

Economists had expected GDP growth to be unrevised at 1.2 per cent in the first quarter. The economy tends to underperform in that period relative to the rest of the year due to perennial issues with the calculation of the data. The government has said it is working to resolve those issues.

First-quarter economic growth was boosted by an upward revision to consumer spending, which accounts for more than two-thirds of US economic activity. Consumer spending rose at a 1.1 per cent pace, the weakest reading since the second quarter of 2013 but almost double the 0.6 per cent reported last month.

Despite the upward revision to GDP, the Trump administration’s stated target of swiftly boosting annual US economic growth to 3 per cent remains a challenge.

A sustained average growth rate of 3 per cent has not been achieved in the United States since the 1990s. The US economy has grown an average 2 per cent since 2000 and it expanded only 1.6 per cent in 2016, which was the weakest growth in five years.

The Atlanta Federal Reserve is currently forecasting annualised growth of 2.9 per cent in the second quarter. Other data on Thursday showed the job market is still flashing a green light.

The Labour Department reported that the number of Americans filing for unemployment benefits last week rose slightly, but the underlying trend remained consistent with a tight labour market. The unemployment rate fell to a 16-year low in May.

US exporters also flexed more muscle in the first quarter. Exports for the period were revised to show a 7.0 per cent rate of growth from the previously reported 5.8 per cent.

Business spending on equipment was revised to show it increasing at a rate of 7.8 per cent in the January-March period rather than the 7.2 per cent previously estimated.