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US economy stalls in first quarter

(London Post)   US economic growth hit the breaks in the first three months of the year, expanding at its slowest pace in two years as consumer spending softened and a strong dollar continued to weigh on exports.

Gross domestic product (GDP) in the world’s biggest economy increased at a rate of only 0.5 percent between January and March – the worst quarterly growth figure since the beginning of 2014, the US Labor Department announced on Thursday in a first estimate.

Businesses had further reduced inventories, the agency said, and falling oil prices had hurt the profits of oil field companies, resulting in the fastest downturn in investment spending since the second quarter of 2009.

Almost all sectors of the economy weakened in the period, with a growing housing market being the only bright spot in the economy, it added.

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Consumer spending cooling

US households were also frugal at the beginning of the year, cutting back especially on purchases of automobiles while further reducing private debt loads.

Consumer spending, which accounts for more than two-thirds of US economic activity, grew by a modest 1.9 percent – the slowest rate since the first quarter of 2015 and a deceleration from the fourth quarter’s 2.4 percent rate.

Savings rose to a lofty $712 billion (627 billion euros) from $678 billion in the fourth quarter as disposal household income increased 2.9 percent from 2.3 percent in the prior period. However, reduced debt and higher savings could be conducive to an acceleration of spending in upcoming quarters.

Inventories and exports down

Nevertheless, US consumers’ reluctance to spend caused businesses to place fewer orders for goods and reduce their inventories.

In the first quarter, businesses accumulated stockpiles worth $60.9 billion, down from $78.3 billion in the fourth quarter. The small inventory build cut one-third of a percentage point from first-quarter GDP growth.

In addition, GDP growth was further hit by declining trade as the strengthening US dollar weighed on exports while boosting imports.

Brighter outlook

Expectations for a pick-up in consumer spending in the second quarter and a recent decline in the value of the dollar have been providing reason for hope that the first-quarter slowdown may be only temporary.

Moreover, the US jobs market is proving increasingly robust, with employment gains averaging 209,000 jobs per month and unemployment having dropped to a 43-year low.

In addition, recent surveys conducted by the Institute for Supply Management for the manufacturing and non-manufacturing sectors have rebounded, boding well for future US growth.

uhe/cjc (Reuters, AFP, dpa)

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