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U.S. Economy Grew at 2.3% Rate in First Quarter
Consumer spending slows down from the fourth quarter, but business investment is robust
Harriet Torry
Updated April 27, 2018 10:45 a.m. ET
Workers navigate the factory floor at the Samsung Electronics America home appliance plant in Newberry, S.C., in March.
Workers navigate the factory floor at the Samsung Electronics America home appliance plant in Newberry, S.C., in March. Photo: Sean Rayford/Associated Press
By
Harriet Torry
WASHINGTON—U.S. economic growth slowed in the first quarter, largely the result of a deceleration in consumer spending that hit even though tax cuts fattened the wallets of many American households.
Gross domestic product—the value of all goods and services produced in the U.S., adjusted for inflation—rose at an annual rate of 2.3% for the months of January through March, the Commerce Department said Friday. That was less than the 3% rate of output growth during the final nine months of 2017, though above the 1.8% growth rate economists expected before the report.
U.S. Economy Grew at 2.3% Rate in First Quarter
Household outlays increased at a 1.1% rate in the first quarter, pulling back from the fourth quarter, when they rose 4.0% and marking the smallest increase since mid-2013. Economists had expected some moderation in consumer spending after last year’s bumper holiday spending season. August and September hurricanes might also have played a residual role. Spending on durable goods like cars surged in the final months of 2017, possibly replacing those lost in the storms, and then receded in the first quarter.
Consumer outlays for durable goods, big-ticket items like cars and dishwashers, dropped at a 3.3% rate, the steepest decline since 2009. The decline in spending on vehicles and parts subtracted 0.42 percentage point from growth.
The report suggested the initial impetus from the $1.5 trillion tax cut passed by Congress late last year was modest at best for households, though many economists expect the full impact won’t likely be felt for years. The saving rate rose from the fourth quarter to the first, meaning households pocketed added disposable income rather than spending it.
“Right now, consumers are cautious,” Navy Federal Credit Union economist Robert Frick said in a note to clients, adding the drop in durable goods spending “points to consumers avoiding big ticket items to conserve cash.”
Despite the caution, surveys show consumer confidence remains relatively high.
Another factor may have led to subdued growth figures: First-quarter growth has tended to be weaker than other quarters in recent years, potentially from seasonal quirks in the data that dissipate in subsequent months. The Federal Reserve expects economic output to expand by 2.7% for the year as a whole.
The slowdown in consumer spending in the first quarter offset more positive developments such as continued momentum in business investment and a rise in U.S. exports. A key category of business spending moderated slightly from the fourth quarter but remained robust. Nonresidential fixed investment, reflecting spending on commercial construction, equipment and software, rose at a 6.1% rate. Capital expenditures were led by 12.3% growth in spending on structures.
The slight pullback in the pace of business investment from the fourth quarter could have been due to the strong incentives businesses had to invest in the fourth quarter of last year before the corporate tax rate declined from 35% to 21%. Deductions were more valuable against the higher rate, and December’s tax law allowed companies to take immediate write-offs for certain capital expenses made after Sept. 27, 2017, rather than depreciating them over time.