US economy grew modestly to start 2018

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

Posted: Apr 27, 2018 7:23 PM
Updated: Apr 27, 2018 7:23 PM

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

The US economy grew at a rate of 2.3% in the first quarter, according to the Commerce Department's preliminary report on Friday. That's slower than the 2.9% pace in the fourth quarter of 2017. Economists surveyed by FactSet had expected a 2% growth rate.

The pace of growth is solid, though less than the 4% President Donald Trump had promised during his presidential campaign.

"The report was good but not great," said Gus Faucher, chief economist at PNC.

Muted household spending was the catalyst for the drop-off.

Consumer spending, which accounts for more than two-thirds of the economy, eased to a 1.1% rate last quarter, its weakest in nearly five years.

Last quarter, spending grew at a robust 4% clip. Economists believe it jumped toward the end of last year in anticipation of tax cuts and as hurricane-damaged areas of the country spent more to replace cars and trucks.

Related: U.S. economy picked up in 2017, but growth slowed at year's end

Congress passed a $1.5 trillion tax cut at the end of 2017. Economists say sluggish consumer spending demonstrates they are not yet fully feeling the benefits of the legislation in their wallets.

"The report was a slight disappointment since the tax cuts should have provided an immediate boost," Paul Ashworth, chief US economist at Capital Economics, said in a research report.

But economists attributed the spending drop to seasonal effects and a pullback after the strong holiday shopping season. The winter months have historically been the weakest quarter of the year.

The San Francisco Federal Reserve even published a 2015 report about the "puzzle of weak first-quarter GDP growth" that suggested sluggish data to start the year was more of a statistical problem than a signal of a struggling economy.

Economists believe the combination of tax cuts and a tight labor market, which encourages employers to give more favorable pay and benefits to attract and retain workers, should boost spending in the coming months.

Related: Looking for a job? New hires are getting paid 5% more than they were a year ago

"Some slowing was to be expected," Faucher said. "I think the fundamentals for consumer spending growth in the rest of 2018 are very good. We have good job growth and wage growth is accelerating, plus tax cuts are boosting paychecks."

Brian Coulton, chief economist at Fitch Ratings, agreed: "With consumption growth likely to bounce back and fiscal stimulus about to kick in big-time, there are probably more upside than downside risks," he said.

Weak household spending offset strong business investment and growing American exports.

Despite the slower growth, the US economy remains in strong shape. Unemployment is at 4.1%, the lowest in 18 years. It's close to what economists consider full employment. Business and consumer confidence remain high.

"Economists across the street seem to agree that there is unlikely to be anything sinister going on behind the slowdown," Morgan Stanley economists said in a research report. They expect a bounce back in the coming months, and preliminary estimates point to 3.6% growth in the second quarter.

The weaker quarter is unlikely to change the Federal Reserve's path to raising interest rates to stave off inflation, economists and Wall Street analysts say. Wall Street has been volatile in recent months about inflation expectations and the Fed's plan, but ignored the data Friday. The yield on the 10-year US Treasury note dropped to 2.96% after crossing the 3% marker earlier this week for the first time since 2014.

"What all this means for the Fed and its rate hike cycle is really nothing," Peter Boockvar, chief investment officer at Bleakley Advisory Group, wrote in an email.

The United States is expanding more quickly than the British economy.

GDP in the UK grew by just 0.1% for the first quarter as uncertainty over the UK's exit from the European Union next year crimped business investment and weighed on construction. The Bank of England is unlikely to raise interest rates after the tepid rise. The European Central Bank is also holding firm on interest rates and continuing its stimulus package as the bloc struggles to grow.

-CNNMoney's Ivana Kottasov- contributed to this story.

Indiana Coronavirus Cases

Data is updated nightly.

Cases: 749097

Reported Deaths: 13745
CountyCasesDeaths
Marion1030271775
Lake554211006
Allen41613691
St. Joseph36933564
Hamilton36505416
Elkhart29347459
Tippecanoe22849225
Vanderburgh22540400
Porter19313325
Johnson18386387
Hendricks17583317
Clark13190193
Madison13111344
Vigo12602253
LaPorte12385221
Monroe12152175
Delaware10947197
Howard10250225
Kosciusko9609119
Hancock8541144
Bartholomew8158157
Warrick7854156
Floyd7763180
Grant7227179
Wayne7154201
Boone6911103
Morgan6735141
Dubois6211118
Marshall6205116
Cass5989108
Henry5893108
Dearborn588878
Noble579786
Jackson508374
Shelby500697
Lawrence4727121
Gibson444093
Harrison440473
Clinton439855
DeKalb438585
Montgomery433890
Whitley405642
Huntington402181
Steuben398659
Miami392568
Jasper386254
Knox375690
Putnam371860
Wabash360583
Ripley346470
Adams344955
Jefferson335685
White329753
Daviess3028100
Wells294881
Decatur289992
Greene286385
Fayette284664
Posey273735
LaGrange272872
Scott269855
Clay265448
Randolph244683
Washington244534
Jennings235149
Spencer234131
Starke227558
Fountain218347
Sullivan213943
Owen210858
Fulton201542
Jay200832
Carroll193420
Orange188055
Perry186937
Rush175626
Vermillion173544
Franklin170135
Tipton165746
Parke148916
Pike137934
Blackford136032
Pulaski120047
Newton112636
Brown103943
Crawford102316
Benton100814
Martin91415
Warren83515
Switzerland8098
Union72810
Ohio57811
Unassigned0421

Ohio Coronavirus Cases

Data is updated nightly.

Cases: 1106796

Reported Deaths: 20091
CountyCasesDeaths
Franklin1284601459
Cuyahoga1155792204
Hamilton812751245
Montgomery524631040
Summit48327999
Lucas43289817
Butler38886603
Stark33275929
Lorain25631502
Warren24554303
Mahoning22327601
Lake21133385
Clermont20095252
Delaware18815135
Licking16643222
Fairfield16552204
Trumbull16520479
Medina15592270
Greene15246246
Clark14216306
Wood13276197
Portage13226214
Allen11904239
Richland11596211
Miami10832223
Wayne9112222
Columbiana9016230
Muskingum8889135
Pickaway8646122
Marion8633138
Tuscarawas8633247
Erie8049164
Ashtabula7136179
Hancock6995131
Ross6932161
Geauga6831150
Scioto6525104
Belmont6148174
Union583549
Lawrence5722102
Jefferson5669158
Huron5539122
Sandusky5433125
Darke5414129
Seneca5342126
Washington5307109
Athens523360
Auglaize501587
Mercer487385
Shelby476195
Knox4567112
Madison443665
Ashland435097
Putnam4333103
Fulton431871
Defiance431798
Crawford4031110
Brown401861
Logan387177
Preble3847103
Clinton378166
Ottawa372581
Highland359165
Williams347578
Champaign343558
Guernsey324153
Jackson317254
Perry297150
Morrow291240
Fayette285450
Hardin274865
Henry273267
Holmes2697101
Coshocton268359
Van Wert247264
Adams242856
Pike242735
Gallia240450
Wyandot234556
Hocking220062
Carroll196648
Paulding176342
Meigs148240
Monroe136144
Noble135739
Harrison113638
Morgan109624
Vinton85417
Unassigned03
Fort Wayne
Partly Cloudy
61° wxIcon
Hi: 82° Lo: 62°
Feels Like: 61°
Angola
Mostly Cloudy
59° wxIcon
Hi: 79° Lo: 60°
Feels Like: 59°
Huntington
Partly Cloudy
60° wxIcon
Hi: 81° Lo: 59°
Feels Like: 60°
Decatur
Partly Cloudy
61° wxIcon
Hi: 83° Lo: 62°
Feels Like: 61°
Van Wert
Partly Cloudy
62° wxIcon
Hi: 83° Lo: 63°
Feels Like: 62°
Mostly sunny skies dominate on Monday. A weak cold front may cause a handful of showers to pop up after noon.
WFFT Radar
WFFT Temperatures
WFFT National

Community Events