US growth continuing but showing signs of fizzling out

US economic growth has accelerated in the first quarter, but the export and inventory boost to activity masked weakness in domestic demand, some of which appears to have prevailed in the current period.

US growth continuing but showing signs of fizzling out

US economic growth has accelerated in the first quarter, but the export and inventory boost to activity masked weakness in domestic demand, some of which appears to have prevailed in the current period.

Federal Reserve chairman Jerome Powell last week acknowledged the temporary lift to economic growth from trade and inventories, which he described as “components that are not generally reliable indicators of ongoing momentum.”

The US central bank last Wednesday signalled interest rate cuts by July, citing rising risks to the economy, especially from an escalation in the trade conflict between the US and China, and low inflation.

“First-quarter GDP paints a misleading picture of the US economy’s vigour at the start of the year, and second-quarter GDP will come as a timely reminder that the economy is now well past its inflection point,” said Lydia Boussour, a senior US economist at Oxford Economics in New York. America’s GDP increased at a 3.1% annualised rate, also driven by more spending on highways and defence, the Commerce Department said in its third reading of first-quarter GDP.

That was unchanged from its estimate last month and in line with economists’ expectations. The US economy expanded at a 2.2% pace in the October-December period. Despite the unchanged reading, growth in consumer spending was revised lower and business investment in intellectual property products was stronger than previously estimated.

There were also upward revisions to spending on non-residential structures and government expenditure. Revisions to the trade deficit and inventory accumulation were minor.

Excluding trade, inventories and government spending, the economy expanded at only a 1.3% rate in the first quarter. That was the slowest rise in this measure of domestic demand since the second quarter of 2013. The economy grew at a tepid 1% rate in the last quarter.

Gross domestic income was previously reported to have increased at a rate of 1.4%. Inflation was also muted in the first quarter. A gauge of inflation tracked by the Fed increased at a 1.2% rate, revised up from the previously reported 1% pace.

The US economy will mark 10 years of expansion in July, the longest on record. However, momentum is slowing, with manufacturing struggling, the trade deficit widening again and the housing sector still mired in a soft patch.

Reuters

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