The U.S. economy stumbled in the first months of the Trump administration, growing at the slowest pace in three years in a sobering reminder of the nation's economic sluggishness.
Gross domestic product grew at a 0.7% annual rate in the first quarter from the preceding three months, the Commerce Department said Friday. Economic output has grown an average of roughly 2% during the nearly eight-year expansion.
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Friday's data offered the broadest report card on the economy in the nearly 100 days since President Donald Trump took office pledging a return to faster growth, and the outlook was mixed. Economic output failed to match the surging confidence expressed by consumers and businesses since the November election.
The broader trend of subdued but steady growth remains intact. Economic output grew 1.9% in the first quarter compared with the same period a year earlier. Fed officials project output will expand 2.1% this year.
In the first quarter, consumer spending grew at the weakest rate since late 2009 as Americans cut purchases of big-ticket items such as cars. Businesses also whittled down their inventories, a potential sign of caution.
Other signs pointed to stronger growth ahead. Companies invested in facilities and equipment at a healthy clip, suggesting renewed confidence in the medium-term outlook. And exports rose steadily amid a strengthening global economy.
Economists brushed off the slowdown as a blip due largely to temporary factors. Most economists expect growth to rebound to a rate of between 3% and 4% this quarter, returning the economy to its underlying trend.
"You look at the whole weight of evidence, if anything the evidence is suggesting the trend in growth is accelerating, not decelerating," said Jim O'Sullivan, chief U.S. economist at High Frequency Economics. "If you look at the backdrop for spending, including [rising] income, wealth, as well as confidence, I think it's pretty clear the trend in consumer spending has not suddenly collapsed."
Economic output often varies widely quarter to quarter. The economy has a habit of starting the calendar year off sluggishly and strengthening later on.
Some economists point to possible flaws in the government's methods for adjusting its data to account for seasonal factors. And temporary factors may have weighed on growth early this year, including unusually warm weather that led to lower utility use and a delay in households receiving tax refunds.
The main factor behind the latest slowdown: sluggish consumer spending. Household outlays grew by the smallest amount since late 2009, as Americans reduced purchases of big-ticket items like cars and spent less on home heating during the warm winter. Rising inflation also cut into paychecks.
Other reports showed auto sales slipped 1.5% in the first quarter from a year earlier, even as car companies offered sweeter deals to keep buyers interested, as an unprecedented seven-year run of sales growth shows signs of petering out. Light-vehicle sales are projected to decline for the fourth straight month in April.
"Clearly it's a more competitive market that we're dealing in than it was two or three years ago," General Motors Co. finance chief Chuck Stevens told reporters Friday, adding that the "industry is plateauing."
Car dealers were sitting on a 72-day supply of vehicles on average in March, up from 66 days a year earlier, according to researcher WardsAuto.com. Vehicles are piling up despite higher discounts. Car makers spent an average of $3,499 on incentives in the first half of April, the highest level for the month since 2009, according to J.D. Power.
Government spending also fell in the first quarter. One possible factor: a three-month hiring freeze imposed by the Trump administration. State and local government spending also fell.
A downturn in businesses' restocking their shelves and warehouses also weighed on economic output. Weak inventory investment dragged down the overall number in GDP growth by nearly a percentage point.
In a hopeful sign, businesses stepped up spending on long-term projects. A measure of business investment -- nonresidential fixed investment -- grew at a 9.4% pace, the biggest jump since late 2013. That coincided with surveys showing a surge in business confidence since the November election.
New strength in the global economy pushed up demand for U.S. exports, which grew at an annual rate of 5.8%. That helped narrow the trade deficit.
Inflation picked up. The price index for personal consumption expenditures -- the Fed's preferred inflation gauge -- rose at a rate of 2.4% in the first quarter, the biggest jump since spring 2011. Core prices, which exclude volatile food and energy costs, increased 2%.
--Mike Colias contributed to this article.
Write to Josh Mitchell at firstname.lastname@example.org
(END) Dow Jones Newswires
April 28, 2017 12:05 ET (16:05 GMT)