US economy posts strong first-quarter gains | News | DW | 26.04.2019
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US economy posts strong first-quarter gains

GDP rose by an annual 3.2% between January and March, beating expectations and adding a full point compared with 2018 fourth-quarter gains. Still, analysts say the surge likely won't last.

The US economy posted strong first-quarter growth between January and March, with the gross domestic product (GDP) jumping by 3.2% compared with the first quarter of 2018. The numbers are the strongest posted for a first quarter since 2015.

The numbers will be welcome news to US President Donald Trump, providing further ammunition in his 2020 reelection campaign. Economists had expected far slower growth due to an ongoing trade war with China, lagging global growth, and, not least, because of the five-week government shutdown over border wall funding in December and January.

Those factors had varying effects on the first-quarter numbers, with reduced imports driving them higher and the shutdown acting as a brake.

Mixed signals despite White House optimism

Although growth is expected to slow in the second quarter, the White House has continued to trumpet optimism, sticking to its claims that the Trump administration's tax cuts will turbocharge growth.

Read more: Trump's tax cuts have little impact on hiring in the US

The main drivers of first-quarter growth were a temporarily shrinking of the trade deficit — which added a full percentage point to GDP — increased state and local spending, corporate inventory building, and an uptick in home sales.

Watch video 02:02

Markets up on hope of tariff resolution

Sluggish consumer spending

Not everything in the Commerce Department's initial estimate, however, looks rosy. Consumer spending on durable goods such as light trucks and electronics, for instance, registered a 5.3% drop — the biggest in almost a decade.

Overall first-quarter consumer spending, which makes up a full 70% of US economic activity, grew at a paltry 1.2% rate.

Corporate investments, contrary to claims by the Trump administration that its tax cuts would fuel them, were also down, with fewer companies buying items like heavy equipment due to uncertainties over the outcome of the US trade war with China.

The US government shutdown also shaved roughly 0.3% off GPD in the first quarter, largely due to the government's inability to fulfill obligations such as granting drilling permits for oil companies or to conduct food inspections. 

Read more: Opinion: Trump's shutdown takes anti-government sentiment to new extremes

Although federal spending remained stable, state and local governments increased infrastructure spending by 3.9%, the largest such outlay in three years.

Imports fell by the largest rate in a decade, with fewer citizens buying foreign cars or going on vacations abroad.

Watch video 01:41

German carmakers woo Trump with investment promises

Economists less bullish

Though stock markets and the White House enthusiastically greeted the Federal Reserve's January announcement that it would not increase interest rates, claiming it would unshackle the economy, economists are less bullish than Trump in terms of their annual forecasts.

Whereas the Trump administration is projecting growth of at least 3%, economists are suggesting something closer to 2.4%.

Nevertheless, the US economy looks likely to improve on the 2.2% annual growth rate it has averaged for the past 10 years.

js/ng (AP, AFP) 

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