1Q growth slows, but acceleration expected in 2Q

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In the first three months of 2018, consumer spending, the main engine of growth, rose just 1.1%, its weakest pace in almost five years, following a 4% gain in the fourth quarter of 2017, which was the biggest in three years. August and September hurricanes might also have played a residual role.

With consumer spending slowing, inventories increased at a $33.1 billion rate in the first quarter, up from a $15.6 billion pace in the prior period.

After a Christmas holiday splurge, consumers cut back on purchases of big-ticket items like cars and washing machines.

The first-quarter growth pace is, however, probably not a true reflection of the economy, despite the weakness in consumer spending.

The Commerce Department report was the first since President Trump's tax cut took effect on January 1. The saving rate rose from the fourth quarter to the first, meaning households pocketed added disposable income rather than spending it.

Despite the caution, surveys show consumer confidence remains relatively high.

America's economic growth slowed at the beginning of 2018 as household spending stalled in spite of recent tax cuts.

Republicans who supported the administration's successful push to win passage of major tax cuts in December said the reports on wages and GDP growth were indications that the tax cuts and other parts of the Trump economic program were beginning to have an impact. A key category of business spending moderated slightly from the fourth quarter but remained robust.

Nonresidential fixed investment, or spending on equipment, structures and intellectual property, increased at a still-solid 6.1% annualized pace, contributing 0.76 percentage point to growth.

The stronger than expected GDP growth reflected positive contributions from non-residential fixed investment, consumer spending, exports, private inventory investment, and government spending. "Higher interest rates will hurt at the margin".

Investment in homebuilding was unchanged in the first three months of the year as sluggish home sales caused by a dearth of houses on the market weighed on brokers' commissions. A bit of inflation is considered a good thing, but some economists worry that the $1.9 trillion in debt the CBO predicts the US will take on due to the tax plan will increase inflation too rapidly.

The Bureau emphasized that the first-quarter advance estimate released today is based on source data that are incomplete or subject to further revision by the source agency (see "Source Data for the Advance Estimate" on page 2). Such building is sometimes associated with destocking later on and could damp growth in the months ahead. Both categories tend to be volatile from quarter to quarter.

Business spending on equipment is forecast to have slowed after double-digit growth in the second half of 2017. A measure of overall inflation rose.

The personal saving rate was 3.1 percent in the first quarter, compared with 2.6 percent in the previous quarter, according to the department. The Federal Reserve targets 2% inflation and has been raising short-term interest rates to prevent the economy from overheating.

The figure was lower than the fourth quarter, when GDP grew at a 2.9%, and the third quarter, which saw an increase of 3.2%.

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