2017.04.2812:14:00UTC+00U.s. First Quarter Gdp Growth Slows down on Weak Consumer Spending, Likely to Rebound in Q2

The advance estimate of U.S. first quarter economic growth was disappointing. The real GDP grew 0.7 percent annualized in the March quarter. This is a slowdown from a 2.1 percent rate in the fourth quarter and was below median consensus estimate of 1 percent. The slowdown in the first quarter growth was mainly due to consumers. Real consumer spending rose just a meagre 0.3 percent after growing above 3 percent in the last three quarters.
Meanwhile, spending on durable goods dropped 2.5 percent after growing 11.4 percent in the fourth quarter. Spending on services was also subdued. It rose 0.4 percent, slowing down from a 2.4 percent growth in the fourth quarter of 2016. Utility consumption was also depressed due to unseasonably warm weather.
On the other hand, non-residential business investment growth accelerated to 9.4 percent from 0.9 percent in the fourth quarter. The growth was led by an increase in spending on structures. Spending on equipment and intellectual property also recorded gains.
Residential investment also rose strongly in the March quarter, rising above 13.7 percent after a 9.6 percent rise in the fourth quarter. Net exports exerted 0.1 percentage point drag on growth in the first quarter. Exports improved 5.8 percent after declining 4.5 percent in the fourth quarter, while imports were up 4.1 percent.
Inventories negatively contributed 0.9 percentage points from growth after adding 1 percent in the prior quarter. Government spending dropped 1.7 percent in the quarter, negatively contributing 0.3 percentage points from real GDP growth.
Today�s report shows the fourth year in a row that the advance release of first quarter GDP has been lower than 1 percent, noted TD Economics. However, the economic growth is expected to accelerate through the remainder of the year. The GDP growth is likely to rebound above 3 percent in the second quarter, driven by consumer spending, stated TD Economics.
�We expect that the Fed will stick to its gradual pace of rate hikes and take a pass at this meeting, and hike in June, if the data cooperates�, added TD Economics.