The U.S. economy was seen advancing at a slower than expected pace from what was initially reported, data from the commerce department showed last week. The United States Gross Domestic Product or GDP which measures the goods and services produced in the economy was seen expanding at a seasonally adjusted pace of 2.0% in the first quarter of the year.
This was a weaker downside revision compared to the previous two initial estimates which showed that the U.S. economy advanced 2.2%. The decline in growth came due to a pull back in spending and the housing market which weighed on the GDP report.
Consumers in the U.S. were apparently seen to have spent less in the services sector than what was initially estimated. Purchases in the health care sector and spending on finance and insurance services were all revised down than the previous estimates. The decline also came with private inventory investment in the retail sector being pulled down as well.
However, offsetting the declines was an increase in spending and investment in other areas that included computer software and research and development which was revised higher from the initial estimates. The pace of growth in the said sectors was seen rising at the fastest pace in three years.
The downside revision to the GDP was one of the slowest paces of increase in recent quarters. GDP growth was seen averaging around 2.7% in the last three quarters. Despite the weaker than expected headline decline, the U.S. economy was seen still rising at a steady pace.
Economists were however cautious as the first quarter GDP growth was seen to be weaker compared to the previous quarters in the recent few years. This was attributed due to the seasonal adjustments. When viewed in the longer term, the U.S. economy was seen advancing 2.8% in the first quarter compared to the previous year.
The U.S. dollar was undeterred as investors were seen bracing for the heavy onslaught of economic reports this week. Expectations are high that the U.S. economy has picked up pace in the second quarter of the year.
By some estimates, the U.S. GDP growth is expected to hit an annual rate of 4.5%, according to the Atlanta Fed’s GDPNow projections on the GDP. The commerce department will be releasing the preliminary GDP estimates for the first quarter later in July which will also include comprehensive revisions to the past data as well.
The U.S economic growth is expected to remain robust for the remainder of the year. This view comes due to the fact that the unemployment rate has remained near decade lows led by steady job gains and wage growth. Furthermore, the tax reforms passed in late 2017 are also expected to eventually encourage spending both by businesses and consumer alike.
Digging deeper into the GDP data, the report showed that company earnings that includes profits after tax increase 10.6% on a seasonally adjusted basis in the three months ending March 2018. This was above the previous estimates which showed a 7.8% increase. The data underlined the fact that the corporate tax cuts which lowered taxes from 35% to 21% were affecting the business, bottom line substantially.
Residential investment however posted a drag on growth. Home building and renovations were seen falling at an annual rate of 1.1% which was revised lower. Still, economists are hopeful that residential investment might post a rebound during the second quarter largely due to the rebound in the U.S housing starts which increased to the highest level since 2007.
The consumer spending data which also plays a major role in the GDP and accounts for more than two thirds of the U.S. economic output was seen increasing at an annual pace of 0.9% during the quarter. The data showed that robust spending increased only moderately when compared to the data from the second half of 2017.
The personal consumption expenditure data which measures the household spending was seen increasing 0.6% on a seasonally adjusted basis compared to the month before. This was the biggest increase in nearly five months suggesting an uptick in spending data.