‘There is enough reason to doubt the growth slowdown for the Fed to stay the course on tightening, especially with a bigger-than-expected pop in employment costs.’ – Chris Low, FTN Financial
The US economy expanded at its weakest pace since the Q1 of 2014 in the three-month period to March, as consumer spending barely rose; however, a rise in business investment and improving pay growth held out hopes that the economy would regain momentum in the upcoming quarters. The Department of Commerce reported on Friday that the economy grew at a 0.7% annual pace in the Q1, following the preceding quarter’s 2.1% and falling behind expectations for a 1.3% climb. The March quarter growth raised doubts over the Trump administration’s ability to boost GDP growth and deliver economic reforms. Consumer spending, the largest contributor to US economic growth, advanced just 0.3%, the weakest since 2009. The Q1 economic slowdown was partially driven by the unusually warm weather, high volatility in inventories and the strong US Dollar. However, Friday’s data showed a pickup in both wage and business investment growth. Therefore, analysts suggest that economic growth will likely rebound in the upcoming months. Moreover, the report showed a jump in inflation that would probably please the Federal Reserve and force it to raise rates at a quicker than expected pace. The next interest rate hike is largely expected to come in June.
