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Weak consumer spending slowed US growth in the first quarter



WASHINGTON (Reuters) – The US economy is likely to have slowed in the first quarter as consumer spending growth slowed sharply. However, the setback is likely to be temporary in the context of a worsening labor market and large fiscal stimulus.

FILE PHOTO – A shopper goes down a hallway in a newly opened Walmart Neighborhood Market in Chicago in this file photo from September 21
, 2011. REUTERS / Jim Young / Files

According to a survey conducted by Reuters, gross domestic product is expected to grow by 2.0 percent among economists, reflecting a slowdown in equipment investment and an expansion in the trade deficit. Decline in housing investment.

These factors are expected to offset an increase in inventories. The economy grew by 2.9 percent in the fourth quarter. The government will publish its Q1 GDP data at 8:30 am (1230 GMT) on Friday.

However, the expected weak growth in the first quarter is unlikely to be a faithful reflection of the economy despite the expected slowdown in consumption. GDP in the first quarter is rather weak due to a seasonal weakness. The labor market is almost full and business and consumer confidence is strong.

"I would not lose sleep compared to first quarter GDP, so the problem of seasonality is," said Ryan Sweet, senior economist at Moody's Analytics in West Chester, Pennsylvania. "Overall, the economy is doing very well and will continue to perform well this year and until 2019."

Economists expect growth to accelerate in the second quarter as households feel the effects of Trump's $ 1.5 trillion income tax package of their paychecks. Lower corporate and individual tax rates as well as higher government spending are likely to raise annual economic growth to the government's 3 percent target, despite the weak start to the year.

Federal Reserve officials are expected to slow weak growth in the first quarter. The US Federal Reserve raised interest rates last month in line with the strong labor market and economy, and forecast at least two rate hikes this year.

The Protocol of 20./21. March, released earlier this month, showed policymakers "expected a temporary first-quarter weakness," citing "residual seasonality in data, and more generally, strong economic fundamentals."

Shoppers drive escalators at the Beverly Center mall in Los Angeles, California, November 8, 2013. REUTERS / David McNew / Archive photo

LACKLUSTER CONSUMER SPENDING

Economists estimate the growth in consumer spending, which accounts for more than two-thirds US economy slowed in the first quarter below 1.5 percent. That would be the slowest pace in nearly five years, following the robust growth rate of 4.0 percent in the fourth quarter.

Consumer spending in the last quarter was likely dampened by late tax refunds and tax cuts. Reconstruction and cleanup after hurricanes late last year have likely postponed spending to the fourth quarter.

"Our recent consumer survey found that 37 percent of consumers thought they had no extra income from the tax cut or did not know what to do with it," said Michelle Meyer, head of the US economy at Bank of America Merrill Lynch in New York.

"It is possible that consumer reaction to tax cuts will be delayed."

Equipment investment is likely to have slowed after double-digit growth in the second half of 2017 Equipment spending is partly reflecting a slowdown in recovery from commodity prices. Economists expect a marginal impact on corporate equipment spending from rising interest rates and more expensive commodities.

"While we do not expect rising prices to push equipment spending, a slowdown is still on the rise," said Sarah House, senior economist at Wells Fargo Securities in Charlotte, North Carolina. "Higher interest rates will hurt the margin."

Housing investment is likely to have declined in the first quarter following a recovery in the period from October to December. Government spending has probably declined after two quarterly increases. However, spending is expected to recover in the second quarter after the US Congress recently approved more government spending.

Trade dragged on GDP growth for a second quarter in a row, as royalties for licensing fees related to the Winter Olympics boosted imports.

With consumer expenditure slowing, inventories are likely to have accumulated in the first quarter. Warehouse investment is expected to have contributed to GDP growth after deducting 0.53 percentage points in the fourth quarter.

Reporting by Lucia Mutikani; Arrangement by Andrea Ricci


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