US economic growth slightly slower at the start of 2019

A screen showing the day's final numbers is displayed above the floor of the New York Stock Exchange shortly after the closing of the market in New York, August 15, 2013. — Reuters pic
A screen showing the day's final numbers is displayed above the floor of the New York Stock Exchange shortly after the closing of the market in New York, August 15, 2013. — Reuters pic

WASHINGTON, May 30 — US economic growth at the start of 2019 was slightly slower than originally reported but remained robust despite President Donald Trump’s extended government shutdown, according to new data released today.

The new estimate left Trump’s economic scorecard largely intact for the first three months of the year, when growth usually slackens, giving him with a potential boost ahead of next year’s presidential elections.

GDP growth in the January-March quarter was revised down to 3.1 per cent, compared to the 3.2 per cent growth reported last month, according to the Commerce Department’s updated report. 

The revised data showed American companies spent less on equipment and software but exports rose and consumers bought more cars than previously thought.

And even with the downward revision to growth—which matched economists’ expectations—it was still the hottest first quarter since 2015 and came with rosier new estimates for factory building and manufacturing activity, which were helped by a drop in oil imports.

But economists do not think the momentum can be maintained in the second quarter, especially given troubling indicators in other economic reports.

There were worrying signs in the latest GDP data, including the second straight quarterly drop in corporate profits, which took their biggest tumble in more than three years.

Weaker investment, spending

Company earnings fell US$65.4 billion compared to the final quarter of 2018, the weakest showing since the end of 2015, after falling US$9.7 billion at the end of 2018.

But for financial services companies, revenues rose, offsetting some of the steep decline late last year, possibly reflecting Wall Street’s strong run in the first quarter.

The Commerce Department also trimmed estimates for worker pay and inflation-adjusted disposable income, which declined from 2018, suggesting consumers may have less money to spend in the second quarter.

And amid the escalating trade war with China, other signs of weakness persisted, including a downward revision to a key measure of inflation: the personal consumption expenditures price index or PCE.

“GDP remained fairly strong, but core PCE prices were even weaker than before” and income data “were relatively weak as well,” Jim O’Sullivan of High Frequency Economics said in a research note.

While exports were broadly higher, the report showed imports were still at their lowest in more than six years, pointing to weaker demand and suggesting the economy could be running out of steam. 

And though consumer spending and business investment were revised upward, both were sharply slower than in the final months of 2018. Business spending on fixed assets like factories and equipment was the softest since the end of 2015.

Chris Low of FTN Financial pointed to the weakness as a troubling signal for growth in the rest of the year.

“This is the core of GDP, consisting of household and business consumption and investment, the driving force behind sustainable growth,” he said. “It sets the tone for future growth.”  

Officials say the extended five-week government shutdown early in the year—when Trump unsuccessfully demanded that Congress fund construction of a wall along the southern US border—likely shaved about 0.3 percentage points from growth in the first quarter.

The shutdown immobilized major federal services on which much of the economy depends, such as oil drilling permits, food inspection and ice-breaking at commercial ports. 

The Commerce Department will have another chance to revise the first quarter result next month as more data become available. — AFP

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