USA growth of 2.3 per cent slows but beats forecasts

USA growth of 2.3 per cent slows but beats forecasts

USA growth of 2.3 per cent slows but beats forecasts

A separate report Friday found that USA private sector workers saw their wages go up 1 percent in the first quarter, the biggest quarterly gain in 11 years, a sign that the tight job market is beginning to lift wages. The change in private inventories added 0.43 percentage point to the quarter's 2.3% GDP growth rate. That's higher than economists had predicted, and a slight slowdown from the 2.9 percent rate estimated for the prior quarter. The price index for personal-consumption expenditures increased at a 2.7% pace in the first quarter, matching the fourth quarter's pace.

But a jump in wage growth and an acceleration in inflation in the first quarter will attract attention when Fed officials meet next Tuesday and Wednesday. Recent history has shown a pattern of weakness in the first quarter, reflecting in part seasonal data quirks.

An increase in business spending, however, helped offset consumer lulls. According to the Commerce Department's surveys, tax cuts were not reflected on many workers pay until late in the first quarter.

"Growth rates around 3 percent are not sustainable but for the next couple of years all the government stimulus is going to provide a lot of economic juice", said Mark Zandi, chief economist at Moody's Analytics. That would be the slowest pace in almost five years and follows the fourth quarter's robust 4.0 percent growth rate.

Trade was likely a drag on GDP growth for a second straight quarter after royalties and broadcast license fees related to the Winter Olympics boosted imports.

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Minutes of the March 20-21 meeting published earlier this month showed policymakers "expected that the first-quarter softness would be transitory", citing "residual seasonality in the data, and more generally to strong economic fundamentals".

Beyond quarterly gyrations, underlying demand looks resilient, analysts said before the report.

Commerce Department analysts reported worrying signs of rising prices with a key price index, excluding volatile food and energy costs, rising 2.5 percent.

Still, the January-March increase came in better than expected and was enough to propel growth over the past year to come close to the 3 percent goal set by the Trump administration. The slow pace has helped extend the life of the current expansion, now the second longest in USA history. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 3.3 basis points to 2.957 percent.

The slowdown in USA consumer spending reflected slower auto sales as well as purchases on clothing, footwear, food and beverages, according to the report.

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"The biggest question is what's going to happen in the second quarter", said Jacob Oubina, senior USA economist at RBC Capital Markets.

Consumer spending, which accounts for more than two-thirds of the economy, eased to 1.1% - the slowest pace since Q2 2013 - after spending grew by 4% in the previous quarter.

Households also boosted savings, which bodes well for a pickup in spending. Residential investment increased at a 12.8 percent rate in the October-December period.

Nonresidential fixed investment, a measure of corporate spending on structures and equipment, grew at 6.1 percent in the first quarter, down from 6.8 percent in the previous quarter.

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