US economy surges at the start of 2019 - GulfToday

US economy surges at the start of 2019

Donald Trump

The US economy got off to a roaring start in 2019, breezing past President Donald Trump's extended government shutdown and wiping away fears of a slowdown in growth, at least for now, the government reported on Friday.

The unexpected surge was welcome news for Trump, whose record five-week shutdown rattled the economy in December and January during a battle with Democrats over funding for a border wall.

It was also the hottest first-quarter performance in four years, but the growth estimate will be revised in May and June as more data come in.

And the rosy numbers nevertheless came with important signs of weakness − the data were lifted by a decline in imports and a buildup in business inventories.

GDP expanded at an annual rate of 3.2 per cent in the January-March period, leap-frogging economists’ expectations and surpassing the 2.2 per cent growth in the final quarter of 2018, the Commerce Department said it its initial estimate.

Trump reveled in the good news.

“Just out: Real GDP for First Quarter grew 3.2% at an annual rate. This is far above expectations or projections,’ Trump said on Twitter.

And he told reporters earlier that the US is outstripping other countries.

“We’re number-one economy right now in the world and it›s not even close.» However, economists warn that some of the factors that contributed to growth in the early part of the year, will become a drag in the coming months.

Diane Swonk, chief economist at Grant Thornton, called the report a “head fake.” “This is one of the weakest 3% growth quarters I have ever seen,” she said in a research note. “Underlying momentum in the domestic economy was particularly weak.” The report said growth was driven by a bump in spending by state and local governments, faster inventory building by companies and some recovery in home sales. And the expansion could have been even stronger without the government shutdown because dip in spending by government workers likely shaved 0.3 percentage points off growth in the quarter, according to the report.

But Swonk said the economy now will have to “deplete inventories that have been built up for the better part of a year. Our forecast holds for a slowdown in 2019.’ — Fewer SUVs, fewer vacations — The White House consistently has rejected concerns about a slowdown amid signs of declining retail sales and manufacturing, and remained steadfast in its predictions that the boost from tax cuts would continue to drive growth − despite calling on the Federal Reserve to cut interest rates to help spur the economy.

As the broad field of Democratic presidential candidates begin honing their messages ahead of next year›s elections, resilient US growth could offer Trump some protection from criticism of his economic stewardship.

But there are signs for concern in the data.

Consumer spending slowed sharply from the final quarter of 2018, weighed down by a 5.3 per cent drop in purchases of durable goods like light trucks, electronics and metals − the biggest tumble in more than nine years.

Corporate investments − a principal White House argument in favor of the 2017 tax cuts − slowed as well, with firms buying less agricultural machinery amid a protracted trade war with China and less office furniture.

In addition, the government shutdown immobilized major federal services on which much of the economy depended, such as oil drilling permits, food inspection and ice-breaking at commercial ports.

Spending by the federal government was unchanged as a result but state and local government outlays rose 3.9 per cent, the largest increase in three years, as states and cities spent more on building highways and streets.

Imports, which subtract from GDP growth, also fell by the largest amount in almost 10 years, as Americans bought fewer foreign cars and took fewer vacations.

“Today›s GDP release is a spot-on example of when ‹better-than-expected› is actually worse than expected, or at least as bad as you thought all along,” said Chris Low of FTN Financial. He and other economists pointed to a measure that strips out some of the more changeable elements − real private domestic sales − which “was the weakest in three years at just 1.3%.” Wall Street was largely unmoved by the numbers, with the major indices trading lower toward 1400 GMT on a batch of mixed earnings reports.

Meanwhile, Wall Street stocks dipped early on Friday as a batch of mixed earnings offset better-than-expected us economic growth data.

About 45 minutes into trading, the Dow Jones Industrial Average dropped 0.2 per cent to 26,410.00.

Agence France-Presse