Home News US Advance Q1 2018 GDP at 2.3 Percent

US Advance Q1 2018 GDP at 2.3 Percent

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By: Adrian Moore – Forex Focus

History repeats itself as growth moderates from 2.9 percent in fourth-quarter 2017.

According to the advance gross domestic product (GDP) figures released by the Bureau of Economic Analysis (BEA), the US economy expanded at an annual pace of 2.3 percent in the first quarter of this year, easing slightly from the 2.9-percent growth reported in the fourth quarter of 2017, on the back of a weakness in consumer spending. In value terms, GDP in current-dollar terms increased by 4.3 percent, or $211.2 billion, to $19.97 trillion in the first quarter, compared to a rise of 5.3 percent, or $253.5 billion, during a similar period.

The first three months of this year were very eventful, beginning with a sharp correction in the stock markets as investors booked profits after a multi-year liquidity rally that saw a majority of listed companies across sectors hit fresh highs. In addition, the imposition of steel and aluminium tariffs by the United States on foes and allies alike stoked fears of a global trade war, further accelerating selling pressure as investors looked to safe-haven assets to park funds momentarily.

According to the BEA, the rise in real GDP in the first quarter can be attributed to positive contributions by non-residential fixed-investment, private-inventory investment, federal government spending, state and local government spending, personal consumption expenditures (PCE) and exports.

The deceleration in real GDP growth, on the other hand, was due to a slowdown in PCE, residential fixed investment, exports, and state and local government spending, which were partly offset by an uptick in private-inventory investment. Imports, which are deducted from the calculation of GDP, also showed some deceleration. Likewise, the slowdown in personal interest income, rental income and nonfarm-proprietors’ income were more or less offset by an acceleration in wages, salaries and social benefits provided by the government.

Key economic data contributing to the advance in GDP figures

  • The price index for gross domestic purchases, which measures the prices of final goods and services purchased by US residents, rose 2.8 percent in the first quarter, compared with a 2.5-percent rise in the fourth quarter.

  • The PCE price index, on the other hand, which rose by 2.7 percent, remained largely unchanged from the fourth quarter. Excluding food and energy, the PCE price index increased 2.5 percent, compared to an increase of 1.9 percent in the last quarter. The index measures the prices paid for goods and services purchased.

  • Consumer spending, which accounts for more than two-thirds of the economic activity in the US, fell to 1.1 percent in the first quarter, slipping to the slowest pace since the second quarter of 2013 and followed the previous quarter’s robust growth rate of 4.0 percent.

  • Personal income in current-dollar terms increased by $182.1 billion, slightly lower than the $186.4 billion reported in fourth-quarter 2017, while personal current taxes decreased by $40.1 billion compared with an increase of $50.1 during the same period.

  • Disposable personal income rose by 6.2 percent, or $222.1 billion, in the first quarter of this year, higher than the 3.8-percent, or $136.3-billion, increase in the fourth quarter of last year. In terms of real disposable personal income, there was a 3.4-percent rise compared to a 1.1-percent increase the previous quarter.

  • Personal savings for the quarter ending March also came in higher at $462.1 billion compared with gross savings of $379.8 billion in the fourth quarter. The personal savings rate, which measures personal savings as a percentage of disposable personal income, also trickled higher to 3.1 percent in the recent quarter, compared with a savings rate of 2.6 percent in the fourth quarter of 2017.

Outlook

While the US economy slowed in the first quarter, the GDP figures came in higher than market estimates of a 2-percent growth. Historically, first-quarter growth in the US has been sluggish compared to the remaining three quarters, with severe weather conditions adding to the discomfort. Also, the advance GDP estimates are based on incomplete source data that are generally revised by the agency in its next estimate. The “second” estimate, expected to be released on May 30, 2018, will be based on more complete information.

Analysts expect growth to rebound above 3 percent in the remaining three quarters as a strong labour market and higher wages propel consumer spending, which was reflected in the March retail-sales numbers. Economists also agree that growth will quicken as households begin to benefit from the $1.5-trillion income tax package, which came into effect in January. A fall in corporate and individual tax rates coupled with a rise in government spending is likely to boost economic growth to the 3-percent target set by the US administration, despite a weak start to the year.

 

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