The U.S. economy likely slowed in the first quarter as growth in consumer spending braked sharply, but the setback is expected to be temporary against the backdrop of a tightening labor market and large fiscal stimulus.
Gross domestic product probably increased at a 2 percent annual rate, according to a Reuters survey of economists, also held back by a moderation in business spending on equipment as well as a widening of the trade deficit and decline in investment in homebuilding.
Those factors likely offset an increase in inventories. The economy grew at a 2.9 percent pace in the fourth quarter. The government will publish its snapshot of first-quarter GDP on Friday at 8:30 a.m. ET.
The anticipated tepid first-quarter growth will, however, probably not be a true reflection of the economy, despite the expected weakness in consumer spending. First-quarter GDP tends to be soft because of a seasonal quirk. The labor market is near full employment and both business and consumer confidence are strong.
“I would not lose sleep over first-quarter GDP, there is the residual seasonality issue,” said Ryan Sweet, a senior economist at Moody’s Analytics in West Chester, Pennsylvania. “Overall the economy is doing very well and will continue to do well this year and into 2019.”
Economists expect growth will accelerate in the second quarter as households start to feel the impact of the Trump administration’s $1.5 trillion income tax package on their paychecks. Lower corporate and individual tax rates, as well as increased government spending, will likely lift annual economic growth to the administration’s 3 percent target, despite the weak start to the year.
Federal Reserve officials are likely to shrug off weak first-quarter growth. The U.S. central bank raised interest rates last month in a nod to the strong labor market and economy, and forecast at least two rate hikes this year.
Minutes of the March 20-21 meeting published earlier this month showed policymakers “expected that the first-quarter softness would be transitory,” citing “residual seasonality in the data, and more generally to strong economic fundamentals.”
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