Consumers Spent Less on Footwear in the First Quarter of 2018

U.S. economy slows in first-quarter but wage growth accelerates

U.S. economic growth slowed to an annualised rate of 2.3% in the first quarter of 2018, the Commerce Department said on Friday. The U.S. economy grew at a steady 2 percent rate over the past decade.

Economists expect growth will accelerate in the second quarter as households start to feel the impact of the Trump administration's $1.5 trillion income tax package on their paychecks.

The Trump administration has promised 3 percent GDP growth or better, due in large part to the tax cuts that were passed late past year. Still, the January-March increase came in better than expected, supporting hopes for a solid rebound for the rest of the year.

"Right now, consumers are cautious", Navy Federal Credit Union economist Robert Frick said in a note to clients, adding the drop in durable goods spending "points to consumers avoiding big ticket items to conserve cash".

Federal Reserve officials are likely to shrug off the first-quarter performance. In my testimony before the Joint Economic Committee earlier this month, I said that tax reform should lead to $55 billion in additional fixed investment in manufacturing this year, with the sector adding at least 100,000 more workers.

The first quarter tends to be weaker.

Beyond quarterly gyrations, underlying demand looks resilient, according to analysts.

Quarter four GDP was 2.9 percent.

Wages and salaries were up 2.7 percent in the 12 months through March compared to 2.5 percent in the year to December.

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%.

Government expenditures increased at a 1.2% annual rate in the first quarter.

The dollar initially rose against a basket of currencies after the data, but gave up gains to trade little changed.

The economy grew at an annual pace of 2.3 percent in the first three months of 2018, truly falling short of President Donald Trump's growth targets for the first time since he took office.

That was the slowest pace since the second quarter of 2013 and followed the fourth quarter's 4% growth surge. This was driven in part by a slowdown in discretionary categories like shoes, apparel and cars, as well as food and beverages.

The tax cuts, focused on corporations and the wealthy, kicked in on January 1, and employers adjusted worker paychecks to reflect the lower tax rates in February.

Positive trade data and an increase in inventories were two major factors behind the beat in first quarter growth; according to some economists, these factors are not sustainable in the long term. Households also boosted savings during the quarter.

Business spending remained robust, with spending on commercial construction, equipment and software rising at an annualized rate of 6.1%. The cooling in equipment investment partly reflects a fading boost from a recovery in commodity prices.

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. Now it figures growth will be 3.3% - a significant upward revision. A weak USA dollar and strengthening global economy are boosting exports.