US GDP growth was higher than expected in the first quarter of this year. However, US economic growth was still poor overall, and a disappointment to President Trump. Gross Domestic Product was expected to rise at a 0.7% annual rate, but actually increased at a rate of 1.2%. However, this rate was still very poor following a 2.1% rate of growth in the final quarter of 2016.
During his election campaign, President Trump had stated a goal of 4% US GDP growth. Analysts are now saying that 3% is a more realistic figure – assuming the American economy picks up. Business investment has been slackening off and consumer spending has also been down. It now seems unlikely that the economy will grow sufficiently to approach that target in the second quarter.
Although early second-quarter figures are showing some recovery, April has still been a disappointing month economically. Business spending has not been strong enough, and inventory investment has also been low. There has been a slight increase in consumer spending, but the goods trade deficit has widened.
Donald Trump has promised a number of initiatives that may help improve the American economy. Among these are income tax cuts for individual taxpayers and businesses.
However, some areas suffer from labor shortages and there are other issues that could make US GDP growth of even 3% a difficult target. It might reach that figure, but sustain it quarter after quarter? GDP growth for the second quarter has been predicted to lie somewhere between 2% and 3.7%.
The higher rate is very optimistic given that major equipment purchases have been low. It could be that many businesses are waiting on promised tax cats before spending. Expenditure on capital goods is one on of the measurements used in calculating the GDP. If this remains low, then even 3% US GDP growth seems unlikely, let alone 4%.
Consumer spending growth rose at a 0.6% rate. Although higher than the 0.3% previously reported, this was the lowest rate since the last quarter of 2009. The previous quarter, the last quarter of 2016, the growth rate was 3.5%. Another factor that will affect the GDP is the interest rate. The Federal Reserve is expected to raise interest rates at the FOMC Meeting on 13-14 June.
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