U.S. GDP Rose 0.7% in First Quarter

WASHINGTON-The U.S. economy's output grew at the slowest pace in three years during the first quarter, underscoring the challenges facing the Trump administration as it seeks to rev up economic growth.

Gross domestic product, the broadest measure of goods and services produced in the U.S., rose 0.7%, at a seasonally adjusted annual rate, in January through March, the Commerce Department said Friday. That marked the economy's weakest quarter since early 2014.

Output was less than half the economy's typical performance during the nearly eight-year expansion. In the fourth quarter, output grew at a 2.1% rate.

Economists surveyed by The Wall Street Journal had expected 1% growth.

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 Americans' paychecks.

The slowdown contrasted with surveys showing surging confidence among Americans and the booming stock market. And it offset other positive developments, including a pickup in business investment and a rise in U.S. exports.

Economic output often varies widely quarter to quarter, and most economists expect the economy to rebound to a rate of between 3% and 4% growth this spring. Indeed, 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 thisyear, includingg unusually warm weather that led to lower utility use and a delay in households receiving tax refunds.

Still, the report offered a downbeat assessment of the economy on the eve of the Trump administration's symbolic 100-day mark. Mr. Trump, who took office in late January, has pledged to return the nation to the above-3% growth that marked the robust expansions of the 20th century.

The broader trend of subdued but steady growth remains intact. Economic output grew 1.9% in the first quarter compared to the same period a year earlier. Fed officials project output will expand 2.1% this year.

Details within Friday's report offered a mixed outlook.

Consumer spending grew at a 0.3% rate, the smallest increase since the fourth quarter of 2009. That largely reflected a drop in purchases of durable goods--big-ticket items such as cars and refrigerators. Spending on services grew at the slowest pace in four years, partly reflecting lower utility bills.

Government spending fell by a 1.7% rate. 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.

And 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%.

The Commerce Department's release on GDP can be found at: http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm

Write to Josh Mitchell at joshua.mitchell@wsj.com and Jeffrey Sparshott at jeffrey.sparshott@wsj.com.

(END) Dow Jones Newswires

April 28, 2017 08:45 ET (12:45 GMT)