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US GDP Slows in First Quarter as Consumers Spend Less

As personal consumption expenditures, exports and government spending decelerated in the first quarter, U.S. real gross domestic product also saw a decline.

After an increase of 2.9% in the fourth quarter of 2017, GDP fell to annual rate of 2.3%, according to the “advance” estimate released by the Bureau of Economic Analysis released Friday.

The deceleration in real GDP growth in the first quarter reflected a decline in personal consumption expenditures (PCE), residential fixed investment, exports, and state and local government spending. These movements were partly offset by an upturn in private inventory investment. Imports, which are a subtraction in the calculation of GDP, decelerated in the period.

Growth in consumer spending, which accounts for more than two-thirds of U.S. economic activity, slowed to an increase of just 1.1% in the first quarter, which was the slowest pace since the second quarter of 2013, according to CNBC, and followed the fourth quarter’s 4 percent increase. The slower rate of growth in consumer spending in the quarter was led by a decline in purchases of motor vehicles, clothing and footwear.

“The growth in Q1 GDP slowed relative to Q4 was accounted for by a slowdown in final sales to domestic purchasers, which was partially offset by increases in net exports and inventory investment,” Ben Herzon, senior economist at Macroeconomic Advisers by IHS Markit, said.

However, Herzon described the GDP growth as “solid” and “exceeding the expected growth of 1.7% from our last tracking estimate.” He attributed the better than unexpected growth to larger-than-expected contributions from net exports, fixed investment and government consumption and gross investment.

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“Net exports rose $8 billion on the quarter, in contrast to our expectation of a decline, as exports were above expectations and imports were below,” Herzon added.

Disposable personal income, a bellwether for future retail spending, increased $222.1 billion, or 6.2%, in the first quarter, compared with an increase of $136.3 billion, or 3.8%, in the fourth quarter. Real disposable personal income increased 3.4%, compared with an increase of 1.1% in the previous three months.

Fueling the increase, which was below President Trump’s stated goal of sustained 3 percent GDP growth but above consensus economists’ projections in the typically depressed first quarter numbers, were positive contributions from nonresidential fixed investment and private inventory investment.

Current-dollar GDP increased 4.3%, or $211.2 billion, in the first quarter to a level of $19.97 trillion. In the fourth quarter, current-dollar GDP had increased 5.3%, or $253.5 billion.

The price index for gross domestic purchases rose 2.8% in the first quarter compared with an increase of 2.5% in the fourth quarter. The PCE price index, which measures the prices paid by consumers for goods and services, increased 2.7%, the same increase as in the fourth quarter. Excluding volatile food and energy prices, the PCE price index increased 2.5%, compared with an increase of 1.9 percent in the prior quarter.

Current-dollar personal income increased $182.1 billion in the first quarter compared with an increase of $186.4 billion in the fourth quarter. Decelerations in personal interest income, rental income and nonfarm proprietors’ income were largely offset by accelerations in wages and salaries and in government social benefits.

Personal current taxes fell $40.1 billion in the first quarter compared with an increase of $50.1 billion in the fourth quarter. Personal saving was $462.1 billion in the period compared with $379.8 billion in the fourth quarter. The personal saving rate–personal saving as a percentage of disposable personal income–was 3.1% in the quarter compared with 2.6% in the year-end period.