The US economy got off to a roaring start this year, breezing past a government shutdown and wiping away fears of a slowdown in growth, the administration of US President Donald Trump reported on Friday.
GDP expanded at an annual rate of 3.2 percent in the January-to-March period, leapfrogging economists’ expectations and surpassing growth of 2.2 percent in the final quarter of last year, the US Department of Commerce said in its initial estimate.
Wall Street was lifted by the news, with S&P 500 and NASDAQ rising to record finishes amid mostly positive corporate results.
It was the hottest first-quarter performance in four years, although the growth estimate is to be revised next month and in June as more data come in.
“Just out: Real GDP for First Quarter grew 3.2% at an annual rate. This is far above expectations or projections,” Trump wrote on Twitter.
He told reporters earlier that the US is outstripping other nations.
“We’re No. 1 economy right now in the world and it’s not even close,” he said.
The report said growth was driven by a bump in spending by state and local governments, faster inventory building by companies and recovery in home sales.
The expansion could have been even stronger without the government shutdown, because a dip in spending by government workers likely shaved 0.3 percentage points off growth in the quarter, the report said.
However, economists said that some of the factors that contributed to growth in the early part of the year would become a drag in the coming months.
Grant Thornton International Ltd lead economist Diane Swonk called the report a “head fake.”
“This is one of the weakest 3 percent-growth quarters I have ever seen,” Swonk said in a research note. “Underlying momentum in the domestic economy was particularly weak.”
Swonk said that the economy would have to “deplete inventories that have been built up for the better part of a year.”
“Our forecast holds for a slowdown in 2019,” she said.
Consumer spending slowed sharply from the final quarter of last year, weighed down by a 5.3 percent drop in purchases of durable goods like light trucks, electronics and metals — the biggest tumble in more than nine years.
Corporate investments slowed as well, with firms buying less agricultural machinery amid a US-China trade dispute and less office furniture.
Imports also fell by the largest amount in almost 10 years, as people in the US bought fewer foreign cars and took fewer vacations.
“Today’s GDP release is a spot-on example of when ‘better-than-expected’ is actually worse than expected, or at least as bad as you thought all along,” FTN Financial economist Chris Low said.
He pointed to a measure that strips out some of the more changeable elements — real private domestic sales — which “was the weakest in three years at just 1.3 percent.”
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