US Economy More Sluggish than Previously Expected
The United States economy has slowed down more than previously
expected in the first quarter in the wake of the weakest performance in
consumer spending in almost five years. However, growth seems to have since
reacquired momentum on the back of a strong labor market and tax cuts.
Gross domestic product, or GDP, was boosted at a 2.0 percent
annual rate during the January to March period, according to the Commerce
Department on Thursday in its third estimate of the first quarter GDP. Last month,
it reported a 2.2 percent pace.
The economy ballooned at a 2.9 percent rate during the
fourth quarter. The downgrade in the first quarter growth was a reflection of
the weaker consumer spending as well as a smaller inventory accumulation than
what the government had estimated in the previous month.
Last January, a $1.5 trillion worth of tax cut packaged was
implemented, and has since been spurring faster economic growth during the
second quarter, placing the annual GDP growth on track to hit the Trump
administration’s 3 percent target.
On the other hand, economists warned that the government’s “America
First” policies are causing the economy’s prospects to become dull. The policies
have also stoked fears of a potentially disastrous full-blown trade war.
The United States is presently involved in a tit-for-tat
trade tariff with its biggest partners, which include China, Mexico, the
European Union, and Canada. Such disputes are seen by analysts as potentially
disruptive of supply chains. They could also undercut business investments and
would probably erase all the fiscal stimulus.
Meanwhile, growth estimates for the second quarter are as
high as a 5.3 percent rate. Economists had been expecting a first-quarter GDP
growth would be unrevised at a 2.2 percent speed. On the other hand, the gross
domestic income, or GDI, which is an alternative measure of economic growth, has
gained at a robust 3.6 percent rate in the January to March quarter. That
figure was revised upward from the 2.8 percent pace that was reported last
month.
The gross domestic output, which is the average of GDP and
GDI and is seen as a better gauge of economic activity, has increased at a 2.8
percent rate during the first quarter, opposed to the 2.5 percent rate that was
estimated in May.
The after-tax corporate
profits have boosted the income side of the growth ledger and it swelled at an
8.7 percent rate during the last quarter, contrary to the 5.9 percent pace that
was reported in May.
The administration cut the corporate tax rate to 21 percent
from 35 percent and it took effect in January. After-tax gains increased at a
1.7 percent pace in the fourth quarter.
Further, growth in consumer spending, which is more than
two-thirds of the overall economic activity, slowed down at a 0.9 percent rate
during the first quarter rather than the previously estimated 1.0 percent pace.
This was the most sluggish pace since the second quarter of
the year 2013. This also reflected downward revisions to healthcare spending by
nonprofits and outlay existing in the finance and insurance services. On the
flip side, consumer spending increased at a 4.0 percent rate in the fourth
quarter.
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US Economy More Sluggish than Previously Expected
Reviewed by HQBroker
on
June 28, 2018
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