Once Again, US First Quarter Growth is Tepid

Once Again, US First Quarter Growth is Tepid

In what is becoming a pattern, US growth disapointed in the first quarter with annualized growth coming in at 0.7%. Last year’s first quarter growth was 0.8%. Longer-term, the US economy expanded at a 1.6% rate in 2016, 2.6% in 2015, and 2.4% in 2014.

Many economists have concluded that the apparent weak first quarter performance has been the result if residual seasonality. The Bureau of Economic Analysis makes seasonal adjustments to GDP data, but sometimes a residual amount of seasonality remains due to factors such as shifting economic seasonality throughout the year. If the pattern continues repeating itself, growth should be stronger for the remainder of the year.

Consumer spending was particularly weak in the first quarter, even as surveys of consumer sentiment suggest strength. Consumption expanded at a rate of just 0.3%, versus 2016 growth of 2.7%. Dozens of retailers have also cited a challenging environment at the outset of the year, which seems to be confirmed by the GDP report. It is possible that the weak consumer was meaningfully affected by lower tax refunds this year and a later start to the season. Should that be the case, second quarter results would be more buoyant.

Business investment stayed strong – a positive sign for the health of the corporate economy and particularly for sectors such as technology that rely on capital investment. Offsetting this somewhat was weak government spending which may have been driven by the hiring freeze imposed by President Trump. That freeze has since been lifted.

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