1Q growth slows, but acceleration expected in 2Q
The U.S. economy slowed in the first quarter as consumers tightened their purse swings and while businesses moderated their spending on equipment, but the latest reading still surpassed expectations.
According to the Commerce Department, GDP increased at a 2.3% annual rate, above the 2% analysts polled by Reuters were expecting.
Consumer spending increased by 1.1% in the first quarter, well below the fourth quarter’s rapid 4% rate. The first-quarter 2018 reading was the slowest since 2013 and reflected a decline in vehicle, clothing and footwear purchases.
Analysts expect the first-quarter growth pace to be a bit of an anomaly and not a true reflection of the economy. First-quarter GDP is usually impacted by seasonality. While consumer spending decreased, the labor market is near full employment and both business and consumer confidence are strong.
Economists expect growth will accelerate in the second quarter as households start to feel the impact of the Trump administration's $1.5 trillion income tax package on their paychecks. According to the Commerce Department’s surveys, tax cuts were not reflected on many workers pay until late in the first quarter.
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.
Government spending grew at a 1.2% rate, slowing from fourth quarter’s 3%, but spending is expected to accelerate in the second quarter after the U.S. Congress recently approved more government spending.