US economy grows 3.1% in first quarter
The United States economy grew at a healthy 3.1 per cent rate in the first three months of this year, but signs are mounting that growth has slowed sharply in the current quarter amid slower global growth and a confidence-shaking trade battle between the US and China.
The gain in the gross domestic product, GDP, the broadest measure of economic health, was unchanged from an estimate made a month ago, the US Commerce Department reported Thursday. However, the components of growth shifted slightly, with stronger business investment and consumer spending slowing more than previously estimated.
Economists believe growth has slowed sharply in the current April-June quarter to around two per cent. They expect similar meagre gains for the rest of the year, a forecast that runs counter to the Trump administration’s expectations for strong growth above three per cent.
The 3.1 per cent growth in the first quarter marked a rebound from a 2.2 per cent growth rate in the fourth quarter of last year. But it was slower than a sizzling increase of 4.2 per cent in the second quarter and a solid increase of 3.4 per cent in the third quarter last year. For the entire year, GDP grew 3.9 per cent, the best annual gain since 2015.
Last year’s strength was powered by the implementation of a US$1.5-trillion tax cut, President Donald Trump’s signature domestic achievement, and billions of dollars in increased government spending on the military and domestic programmes Congress approved in early 2018.
However, the impact of the tax cuts and the higher government spending are expected to fade this year, leaving the economy growing very close to the 2.2 per cent average seen over the 10 years of the current expansion, which will become the longest in US history next month.
Trump is scheduled to meet on Saturday with Chinese President Xi Jinping at a Group of 20 major nations summit in Japan to see if a way can be found to restart trade negotiations between the world’s two biggest economies.
The trade tensions have increased uncertainty over what higher tariffs on Chinese imports will do to the US economy, resulting in declines in manufacturing activity and a drop in consumer confidence.
Mark Zandi, chief economist at Moody’s Analytics, said if this week’s talks don’t achieve at least a ceasefire in the trade war and Trump carries through with his threats to expand tariffs on US$250 billion in Chinese goods to cover virtually all of Chinese imports, that could be enough to trigger a full-blown recession.
“I think we are on the razor’s edge here,” Zandi said. “The real threat now is an expanding trade war which would push growth below potential and result in unemployment starting to rise.”
In the first quarter, consumer spending, which accounts for 70 per cent of economic activity, slowed to a small 0.9 per cent rate of gain, down from a previous estimate of 1.9 per cent. This downward revision was offset by several factors including stronger spending by businesses on investment in such areas as computer software.