US economy grew at strong 3.2% rate in first quarter

WASHINGTON — The U.S. economy grew at a solid 3.2% annual rate in the first three months of the year, a far better outcome than expected, overcoming a host of headwinds including global weakness, rising trade tensions and a partial government shutdown.

The advance in the gross domestic product, the broadest measure of economic health, marks an acceleration from a 2.2% gain in the previous October-December period, the Commerce Department reported Friday. However, about half the gain reflected two factors not expected to last — a big jump in stockpiling by businesses and a sharp contraction in the trade deficit.

Still, the GDP gain surpassed the 3% bar set by President Donald Trump as evidence his economic program is working. Trump is counting on a strong economy as he campaigns for re-election.

In a tweet, Trump called the 3.2% growth “far above expectations.” Speaking to reporters before leaving Washington for a speech to the National Rifle Association, Trump termed the GDP figure an “incredible number” and said, “Our economy is doing great. Number One in the world.”

It was the strongest first quarter growth rate since 2015. In recent years, GDP has been exceptionally weak in the first quarter. There had been fears growth could dip below 1% this year due to a variety of adverse factors such as the December stock market nosedive, rising weakness in key economies overseas, the U.S. trade war with China and a 35-day partial government shutdown that ended in January.

But the economy shrugged off those concerns, helped by an announcement in early January from the Federal Reserve that after raising rates four times last year, it was declaring a pause on further rate hikes. That spurred a stock market rebound by easing concerns that the central bank might overdo its credit tightening and send the country into a recession.

In the first quarter, inventory rebuilding added 0.7 percentage point to growth, while a falling trade deficit boosted growth by a full percentage point. Analysts think both of those factors will reverse in the current quarter. Analysts at Macroeconomic Advisers said they expect GDP will slow to a 1.8% rate in the second quarter.

“The drivers of growth in the first quarter are unlikely to persist,” said Gus Faucher, chief economist at PNC.

But Larry Kudlow, head of the president’s National Economic Council, said the administration is sticking with its estimate for growth above 3% this year, believing that low unemployment and solid wage gains will give a boost to consumer spending, which slowed in the first quarter.

Kudlow predicted that the income growth will lead to a rebound in car sales and also help lift housing, which has been struggling over the past year.

“I think the prosperity cycle is intact,” Kudlow said in a CNBC interview. “I think the Trump policies are working to rebuild America and people are getting happier and happier.”

Consumer spending, which accounts for 70% of economic activity, slowed to growth at a rate of just 1.2% in the first quarter.

 

File photo by THE ASSOCIATED PRESS A Washington state ferry sails on a foggy day near cranes at the Port of Seattle. On Friday, the Commerce Department issues the first estimate of how the U.S. economy performed in the January-March quarter.

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