The US economy turned in the weakest performance in three years in the January-to-March quarter this year, as consumers sharply slowed their spending.
The result fell far short of US President Donald Trump’s ambitious growth targets and underscores the challenges of accelerating economic expansion.
The GDP grew by just 0.7 percent in the first quarter following a gain of 2.1 percent in the fourth quarter, the US Department of Commerce reported on Friday.
The slowdown primarily reflected slower consumer spending, which grew at a seasonally adjusted annual rate of 0.3 percent after a growth rate of 3.5 percent in the fourth quarter.
It was the poorest quarterly showing in more than seven years.
The sharp slowdown in consumer spending was attributed to a collection of temporary factors: warmer weather, which shrank spending on heating bills; a drop-off in car sales after a strong fourth quarter; and a delay in sending out tax refund checks, which also dampened spending.
BMO Capital Markets senior economist Sal Guatieri said he expected consumer and government spending to bounce back, leading to a much stronger second quarter.
“Still, the report will mark a rough start to the administration’s high hopes of achieving 3 percent or better growth, not the kind of news it was looking for to cap its first 100 days in office,” Guatieri said in a note to clients.
US Secretary of Commerce Wilbur Ross said that the weak first quarter performance showed the need for the new policies Trump is offering.
“We need the president’s tax plan, regulatory relief, trade negotiations and the unleashing of [the] American energy sector to overcome the dismal economy inherited by the Trump administration,” Ross said in a statement.
He said that strong business and consumer sentiment “must be released from the regulatory and tax shackles constraining economic growth.”
Trump had repeatedly attacked the weak GDP rates during his campaign as an example of former US president Barack Obama’s administration’s failed economic policies.
He said his program of tax cuts for individuals and businesses, deregulation and tougher enforcement of trade agreements would double growth to 4 percent or better.
In unveiling an outline of the Trump administration’s tax proposals on Wednesday, US Secretary of the Treasury Steven Mnuchin said he believed growth above 3 percent would be achievable.
However, many economists are more skeptical.
They are forecasting growth of about 2.2 percent this year, which would be an improvement from last year’s 1.6 percent, the weakest showing in five years, but far below Trump’s goal.
Many analysts believe that the effects of Trump’s economic program will not be felt until next year, because they are not expecting Congress to approve some version of Trump’s tax program until late this year.
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