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First quarter GDP disappoints

Myles Udland
Markets Reporter

The first major economic report of Donald Trump’s presidency was a disappointment.

In the first quarter, the U.S. economy expanded at an annualized rate of 0.7%, less than expected.

According to Bloomberg, Wall Street economists were expecting the economy grew at an annualized pace of 1% to start the year.

Personal consumption, which accounts for about 70% of GDP, rose at a rate of just 0.3% to start the year. Economists expected consumption would rise 0.9%; in the fourth quarter, consumption expanded at a pace of 3.5%.

In 2016, the economy grew just 1.6%, the slowest pace of growth since 2011.

GDP growth over the last four years. (Source: BEA)

In the first quarter, fixed investment added 1.62% to GDP growth, led by nonresidential (read: business) fixed investment, which added 1.12%. An inventory drawdown during the quarter took 0.93% off GDP growth. Government spending subtracted 0.3% from growth, during the quarter, while imports too 0.61% off GDP. The net of exports minus imports added 0.07% to GDP.

“The increase in real GDP in the first quarter reflected positive contributions from nonresidential fixed investment, exports, residential fixed investment, and personal consumption expenditures, that were offset by negative contributions from private inventory investment, state and local government spending, and federal government spending,” according to the BEA.

“Imports, which are a subtraction in the calculation of GDP, increased. The deceleration in real GDP in the first quarter reflected a deceleration in PCE and downturns in private inventory investment and in state and local government spending that were partly offset by an upturn in exports and accelerations in both nonresidential and residential fixed investment.”

“We suspect consumer spending, inventories, and public spending will be stronger in Q2 while capex and housing will moderate some but still contribute to GDP,” writes Neil Dutta, an economist at Renaissance Macro.

“Private domestic demand ran 2.2% SAAR in Q1 and has climbed 2.8% over the last year. We suspect that is closer to the economy’s underlying growth.”

Some estimates for Friday’s report, however, pegged growth even lower than 0.7%, with researchers from the Atlanta Fed forecasting the economy grew just 0.2% to start the year. Estimates from the New York Fed pegged growth to start the year closer to 2.7%.

President Trump pledged during the campaign that he would return the economy to 4% GDP growth.

Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland

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