US economic growth rebounds at 3.2 percent pace in first quarter

By Economic IndicatorsFOXBusiness

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The U.S. economy grew more quickly than most economists expected during the first quarter of 2019, according to data released Friday by the Commerce Department.

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During the three-month period from January to March, the GDP rose at a 3.2 percent annualized rate, beating most analysts’ expectations of 2.5 percent.

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It also bested GDPNow, a real-time tracker monitored by the Federal Reserve Bank of Atlanta, which lowered its forecast to 2.7 percent this week because of weakness in existing-home sales and a drop in residential investment growth.

The economy largely shook off the effects of a five-week long government shutdown -- the longest in U.S. history -- that White House officials once warned could result in near-zero growth. The standoff was a result of a feud between President Trump and Democratic congressional leaders over funding for a wall along the U.S.-Mexico border.

Disposable income rose $116 billion, or 3 percent, in the first quarter. Overall prices 0.8 percent.

Investors were closely watching the report’s release for signs to dismiss fears of an impending economic recession. Stocks rose on the better-than-expected results in pre-market trading.

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“We started 2019 with fears that the longest government shutdown in history, along with a softening global growth outlook, would weigh on economic activity in the first quarter,” Michael Reynolds, an investment strategy officer at Glenmede said. “3.2 percent growth is a solid result, suggesting this long, late-stage expansion may be more resilient than feared.

But despite the better-than-expected figure, some analysts suggested the U.S. economy will still decelerate in 2019 and 2020. Although inventories were high -- boosting the growth number -- Agathe Demarais, the global forecasting director at the Economist Intelligence Unit, said it’s likely to become a drag on growth soon.

Demarais estimated that growth in 2019 will stand at 2.2 percent -- a sharp fall from 2.9 percent in 2018. She attributed part of that to the effects of global trade tensions. In 2020, she said growth is expected to fall to 1.7 percent amid softening consumer demand and a less supportive external environment.

“Against this backdrop, we expect the Federal Reserve to hold interest rates stable this year before cutting rates by 50 basis points in 2020,” she said. “This path for monetary policy will cushion growth in 2019 to 2020 and help to guard against a sharper downturn in US economic conditions.”

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