US growth of 3.2pc beats forecasts but consumer spending fears remain

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US growth of 3.2pc beats forecasts but consumer spending fears remain

 


'While 3.2pc is a
‘While 3.2pc is a “great number,” consumer spending “has to get stronger for the economy to remain in an expansion,” said Michael Gapen, chief US economist at Barclays.’ Stock image: PA

US economic growth accelerated by more than expected in the first quarter on a big boost from inventories and trade that offset slowdowns in consumer and business spending, bolstering hopes that growth is stabilising after its recent soft patch.

GDP expanded at a 3.2pc annualised rate in the January-March period, according to Commerce Department data that topped all forecasts in a Bloomberg survey calling for 2.3pc growth.

That followed a 2.2pc advance in the prior three months. But underlying demand was weaker than the headline number indicated. Consumer spending, the biggest part of the economy, rose a slightly-above-forecast 1.2pc, while business investment cooled. A Fed-preferred inflation measure, the personal consumption expenditures price index excluding food and energy, slowed to 1.3pc, well below policymakers’ 2pc objective.

Even so, the data showing faster growth and tame inflation helped push US stock futures higher and Treasury yields lower last Friday. The first acceleration in GDP since mid-2018 reflected the largest combined boost since 2013 for two typically volatile components – inventories and trade – that could weigh on the economy later in the year. While steady wage gains and the Fed’s forbearance on interest-rate hikes will help make the expansion the nation’s longest on record in July, the fading impact of tax cuts and a global slowdown mean President Donald Trump’s goal of sustained 3pc growth will still be difficult to reach.

While 3.2pc is a “great number,” consumer spending “has to get stronger for the economy to remain in an expansion,” said Michael Gapen, chief US economist at Barclays. “We think it will, but it’s not a silver lining. Underneath the hood, household spending was soft and further expansion is going to require households to get back to a normal space of spending.”

The growth pickup mainly reflected a downturn in imports, greater state and local government spending, and rising inventories that were partially offset by slower consumer spending and fixed investment, the Commerce Department said.

The pickup came despite the government shutdown in January, which subtracted 0.3 percentage point from the quarterly growth pace. The closure also chopped the fourth quarter by 0.1 point, while adding that the full effects can’t be quantified. Other recent reports have pointed to signs of strength, with March retail sales rebounding and a proxy for business investment rising sharply. US stocks also rallied the most since 2009 in the first quarter and this month extended gains to a record, easing some concern about the durability of growth.

Bloomberg

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Bloomberg

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