US economy grew at very slow pace during first quarter

The U.S. economy slowed to its lowest growth rate in three years. Consumer spending was at a very low growth pace with lower auto sales which offset a rise in oil drilling and housing investment.

Gross domestic product (GDP) rose just 0.7 percent during the quarter at an annualized rate. In the prior quarter the growth rate was 2.1 percent. A median of various analyst's forecasts was 1.0 percent. The largest part of the economy consumer spending rose by only 0.3 percent the worst performance since 2009.
Michael Feroli, chief U.S. economist for JP Morgan Chase & Co. said: “There’s reason to think that some of the things that were weak in the first quarter should reverse in the second quarter, in particular consumption and inventories. Labor income is starting to pick up and actually keeping consumer spending pretty well supported.” Federal Reserve policy makers will probably still raise interest rates in the coming months as many economists see the weak growth as a blip rather than a sign of stagnation. Since 2000 expansion in the first quarter of each year has been recorded as weaker than the other three quarters. In first quarters average expansion has been only one percent compared to 2.2 percent in the other three quarters.
Analysts estimates of growth are from 2.2 percent to 2.3 percent through 2019 whereas Trump projects a more optimistic three to four percent growth on a sustained basis. The range of individual economist's's forecasts for 2017 were from zero to 2.2 percent. Disposable personal income was rising at a slow one percent rate last quarter the slowest growth since the fourth quarter of 2013. Even though the jobless rate is low and there is hiring an increase in wages is needed to promote consumer spending. Government spending decreased 1.7 percent taking away 0.3 percent from growth. Prices rose 2.3 percent during first quarter eating away at what the consumer dollar buys.
As I write this, the Dow Jones is down slightly, but still at 20,965 not far from the 21,000 mark. S&P 500 was almost flat and Nasdaq was up marginally. As the price of oil rose, the Toronto S&P/TSX added almost one hundred points. After strong growth in January, the Canadian economy was almost flat in February but this was as predicted.
After a fifth straight month of gains, global markets appear to be ending the month sluggishly. This was not helped by Trump's continued complaints about NAFTA and now a free trade pact with South Korea. Saturday marks Trump's 100th day in office.
Kiran Kowshik, an investment strategist at Unicredit, said: "Trump is reaching the 100 day mark with nothing to show for it and these recent comments just coincide with that. They (the U.S. administration) are finding it hard to push through fiscal plans and all this rhetoric is probably related." The mood in Europe was still relatively optimistic as data on output in several countries was positive and many were relieved after it became clear that the right-wing anti-Europe Le Pen would not likely win.
Back in early February, Nouriel Roubini, Dr. Doom, predicted that the stock market honeymoon with Donald Trump would soon be over. It may not be over but it is certainly paused and the market was not impressed by Trump's release of his tax plan which was short of details and regarded by many as unrealistic. It may be an uphill battle to shape the plan so as to pass through congress.


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