First quarter economy better than originally estimated

Keywords Economy

The U.S. economy started 2017 out with a whimper, but it wasn't quite as weak as first thought. The government revised up its January-March growth reading to a rate of 1.2 percent—better than an earlier estimate of 0.7 percent, but well below President Donald Trump's ambitious growth targets.

Growth in the gross domestic product, the broadest measure of economic health, is down from a 2.1 percent annual growth rate in the fourth quarter and marks the weakest result in a year, the Commerce Department reported Friday.

The GDP report released Friday was the first of three estimates the government will make of first quarter growth. GDP figures are often raised or lowered on the second and third estimates.

In recent years, the first quarter has often turned out to be the weakest for the year, reflecting in part problems the government has not been able to resolve in adjusting its figures for normal seasonal changes.GDP growth in last year's first quarter was 0.8 percent.

The upgrade to 1.2 percent reflects new-found strength in consumer spending, business investment and state and local government spending.

Many economists believe growth in the current April-June quarter will rebound sharply to above 3 percent, helped by stronger consumer spending that reflects solid employment gains and an unemployment rate that has fallen to a decade low of 4.4 percent. Moreover, part of the first quarter weakness reflected various temporary factors such as unusually warm winter weather.

Paul Ashworth, chief U.S. economist at Capital Economics, said even with the upward revision it "doesn't alter the fact that it was another disappointing start to the year."

But he and other analysts said they were still looking for a better showing in the current quarter.

"Growth is bouncing back in the second quarter," said Gus Faucher, chief economist at PNC. "Consumer spending continues to expand with job and wage gains, and business investment is picking up, especially for energy-related industries."

However, after a spring surge, analysts believe growth will fall back to a level of 2 percent to 2.5 percent in the second half of the year—the same modest pace that has been in effect for the almost eight years of this economic recovery, making it the slowest expansion in the post-World War II period.

During the campaign, Trump attacked the economy's weak growth and blamed it on failed economic policies of the Obama administration. He vowed that his economic program of tax cuts, deregulation and tougher enforcement of trade agreements would double growth to 4 percent or better.

Trump released his first budget on Tuesday, a $4.1 trillion spending plan that counts on faster growth to trim deficits by $2 trillion over the next decade. Many private economists believe Trump's budget is far too optimistic about how fast the U.S. economy can grow, given an aging workforce and stubbornly low productivity gains.

The economy grew 1.6 percent for all of last year, the poorest showing in five years. With Trump's legislative program running into obstacles in Congress, forecasters have been trimming their growth numbers for the second half of this year and pushing any gains from Trump's tax cuts into 2018.

The revision for the first quarter reflected a boost in consumer spending to an annual rate of 0.6 percent, still the slowest in seven years but up from an initial estimate of 0.3 percent. Analysts believe that consumer spending should expand in the current quarter, helped in part by the tendency of consumers to spend more during periods of rising stock prices and home values because their net worth is increasing.

The latest result was also driven by lower declines in spending by state and local governments than initially thought and stronger investment by businesses in structures and intellectual property.

The report on GDP represented the government's second of three estimates of GDP performance in the first quarter.

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