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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