US economy expands at slowest pace in three years

The economy in the USA expanded at the weakest pace in the past three years during the first three months of 2017 as spending by consumers was almost flat and investments in inventories by businesses were down, in a possible setback to the promise by President Donald Trump to boost economic growth.

The US economy slowed dramatically in the first quarter of 2017, with GDP weakening andexpanding by only 0.7 percent, down sharply from the 2.1 percent expansion seen in the fourth quarter of 2016.

It's important to caution that the first estimate for economic growth to start the year has been unusually low in recent years and has been later revised upward.

Hampered by perennial residential seasonality issues and one-off items, the first quarter of each year in this expansion cycle has more times than not resulted in a lower-than-trend GDP growth performance.

The bureau will release its second estimate for the first quarter of 2017 on May 27. The Bureau of Economic Analysis calculates that the USA economy grew at an annualized pace of 0.7% - the worst result in three years. Wage growth in the first quarter was the fastest in 10 years as the labour market nears full employment and business investment on equipment was the strongest since the third quarter of 2015.

A private domestic demand measure increased at a rate of 2.2% for the just ended quarter. Oxford Economics economics chief Gregory Daco predicted first-quarter growth to come in around 0.9 percent.

Meanwhile, the large drag on fourth quarter growth was net exports, with economic headwinds overseas and the strong US dollar challenging manufacturers.

Tax cuts, regulatory relief, trade renegotiations and an unfettered energy sector are needed "to overcome the dismal economy inherited by the Trump administration", said Commerce Secretary Wilbur Ross.

"Most economists believe the track for the USA economy for the intermediate future is going to be very familiar to what has been seen over the last number of years, and that's somewhere between one and probably 2.5 percent on an annual basis". Weak auto sales were one factor dragging down consumer spending.

U.S. GDP grew only 0.7% in Q1; United Airlines settles with abused passenger; and Southwest to end overbooking of flights. Wall Street anticipates for growth at an annual rate of 2.8 percent in the second quarter.

Traders pinpointed the problem with the GDP as slow consumer spending. Consumption spending increased to an annual rate of $11.7 trillion, up $9.7 billion from the preceding quarter.

Normally PCEs drop off a bit in the first quarter of any year, coming after the spending sprees of Q4 holiday seasons.

A drop in vehicle sales largely held down consumption, which subtracted 0.45 percentage points from the growth rate. Residential investment added 0.5 point to growth. It is not expected to raise interest rates next Wednesday.

Trade was virtually a wash in the quarter, with a 5.8 percent increase in the volume of exports being offset by a 4.1 percent rise in imports (imports are roughly 20 percent larger than exports). The growth was led by an increase in spending on structures. State and local outlays fell at a 1.6 percent annualized rate, while spending by federal agencies dropped at a 1.9 percent pace.

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