Consumers lead slowdown in Q1 economic growth

The U.S. economy slowed in the first quarter of 2018, driven to a large extent by a big slowdown in consumer spending.

The results confirm a post-holiday return to less robust consumer spending (more here) and raise some concern about the outlook—even if market analysts discount the overall economic letup as temporary,

Below are highlights from the GDP breakdown of the economy.

  • Topline GDP. Total inflation-adjusted (i.e., real) GDP slowed to a 2.3% annualized (quarter-to-quarter) growth rate in the first quarter from 2.9% in the fourth quarter. A slowdown was evident across all the major sectors of the economy, including business investment when an inventory buildup is excluded.
  • Consumer spending. Inflation-adjusted consumer spending slowed to 1.1% quarter-to-quarter growth, down from 4.9% growth the prior quarter. The slowdown is less dramatic when growth is measured on a year-to-year basis.
  • Business spending. Gross business investment (including inventories) accelerated in the first quarter (+7.3%). That growth is less robust excluding inventory buildups (+4.6%), but a slowdown might have been expected given very strong prior-quarter growth. A continued slowdown in investment growth, however, would be an ominous sign for future economic growth.
  • Outlook. The signs from the first-quarter suggest a mixed outlook for the economy. Growth will depend on persisting business investment if consumers remain on a path of less robust spending, which appears to be the case given the trends in consumer confidence to spend (more here on confidence).
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