U.S. first quarter GDP advanced at scant 0.5 % pace

U.S. first quarter GDP advanced at scant 0.5 % pace

The U.S. economy stumbled out of the gate in 2016 as consumers and businesses pulled back, underscoring the uneven growth that has been a hallmark of the nearly seven-year expansion

Gross domestic product advanced at a 0.5% seasonally adjusted annualized rate in the first quarter, the Commerce Department said. That was the worst performance in two years. The economy expanded 1.4% in the fourth quarter and 2.0 % in the third quarter. Economists had expected GDP to grow at a 0.7 % pace in the January-to-March span.

The economy had expanded 1.4% in the fourth quarter of 2015 and 2.0% in the third quarter.

Slow starts to the year are nothing new, leaving hope that better months are ahead. GDP shrank in the opening quarter of 2014 and barely grew at the outset of 2015, only to bounce back and leave the economy on the same staid trajectory typical of the expansion. For all of 2015, GDP advanced 2.4 %, the same as 2014. What is less clear is whether the economy will rebound yet again or whether the latest data signal a more persistent slowdown. GDP growth reached a 3.9 % pace in the second quarter of 2015 but has deteriorated each period since amid an array of global crosscurrents.

U.S. Data

Non-residential fixed investment, a measure of business spending, fell 5.9 %, the biggest drop since the waning days of the recession. Spending on structures and equipment both sank. The energy industry has been especially constrained amid low commodity prices and investment in mining shafts and wells was a major drag in the first quarter.

The Federal Reserve in December decided to raise interest rates for the first time in nearly a decade, citing a healthy labour market and other signs of steady economic growth. However, central bank officials, following a two-day meeting this week, decided to leave another move on hold while the outlook remains uncertain.

”Labour market conditions have improved further even as growth in economic activity appears to have slowed,” officials said in a statement April 27, 2016.

Personal consumption, which accounts for more than two-thirds of economic output, expanded at a 1.9 % rate in the first quarter. Outlays on goods advanced only 0.1 %, the slowest pace in nearly five years. Spending on services climbed 2.7 %.

Relatively low gasoline prices and steady job gains apparently were not enough to allay a sense of caution in the opening months of the year. Consumer spending has been on a downward trajectory for three consecutive quarters now.

Trade and inventories also subtracted from growth at the start of the year. The decline in net exports reflects a strong dollar and spotty demand from overseas. Inventory figures, meanwhile, can be volatile and that drag may well be easing this spring.

Overall government spending contributed to growth. Federal nondefense spending grew at a 1.5 % pace and defence spending shrank 3.6 %. Spending at the state and local level was up 2.9 %.

The latest economic figures come against a backdrop of low inflation.

The price index for personal-consumption expenditures rose only 0.3 % from the prior quarter. Core prices, which exclude volatile food and energy costs, rose 2.1 %.

The advance GDP figures are based on incomplete information.

www.wsj.com


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