US economic growth falls to lowest rate since 2014 - business live
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Version 14 of 18. 2.56pm BST 14:56 Wall Street calm after GDP miss The US stock market isn’t too concerned by the growth figures. The Dow Jones industrial average has dipped in early trading, but the technology-focused Nasdaq hit a new record high. That’s due to Amazon and Alphabet (Google), which both posted strong results after the closing bell on Thursday night. Updated at 2.56pm BST 2.51pm BST 14:51 The weather is copping some blame for the slowdown in US growth. Unusually mild conditions meant Americans spent less money heating their homes and offices during the winter, which equates to lower economic activity. Michelle Meyer, chief United States economist at Bank of America Merrill Lynch, explains: “Warm weather meant consumers weren’t spending as much on electricity and natural gas and home heating. Government spending can also be affected by seasonal factors, and defense spending is especially volatile.” 2.25pm BST 14:25 Here’s Paul Ashworth of Capital Economics, explaining how weak consumption dragged the American economy back down in the last three months: The slowdown in the first quarter this year was principally due to a near-stagnation in consumption, which increased by only 0.3% annualised. Household spending was held down by a drop back in motor vehicle sales from a near-record high at the end of last year and the unseasonably warm winter weather, which depressed utilities spending. But consumer confidence is unusually high and real personal disposable income increased at a 4% annualised pace in the first quarter. Consumption growth will rebound in the second quarter. 2.23pm BST 14:23 Another former Democratic official argues that we shouldn’t panic about the US growth figures. Jason Furman, who chaired president Obama’s council of economic advisors, points out that growth will likely rebound in the April-June quarter. If Q2 comes in at its current track of 3.8% (a big if) then the first 1/2 of this yr will--once again--be normal. So stop hyperventilating. 2.09pm BST 14:09 It may be tempting to contrast Donald Trump’s promise to “Make America Great Again” with the news that US economic growth has hit a three year low on his watch. This certainly isn’t the start that Trump had in mind during the campaign, when he boasted that America could grow by more than 4% per year if he were in charge. But I don’t think you can really blame the new president for the slowdown in Q1 (especially if you’re also criticising him for not getting much done in his first 100 days). The consequences of Trump’s presidency will only emerge over many months and years. Nancy Curtin, chief investment officer at Close Brothers Asset Management, explains: We haven’t yet had the expected fiscal stimulus from Trump, the effects of which may not be seen until the end of this year or the start of 2018. While investors might be disappointed with the reading, it has been a steady start to the year with inflation looking benign, a resilient jobs market and positive PMI data, all likely to boost returns for investors.” Macro-economic strategist George Pearkes concurs: If you're blaming Q1 GDP on Trump you're not only economically illiterate but further blinded by your politics. Updated at 2.11pm BST 2.00pm BST 14:00 Jared Bernstein, a former advisor to VP Joe Biden, points out that America’s economy has posted solid enough growth over the last year: Yr/yr Q1 GDP growth 1.9%. That's a less noisy measure for Q1 and on recent trend. 1.52pm BST 13:52 Some context: Just in: U.S. GDP grew at an annual rate of just 0.7% in the first quarter of the Trump presidency, down from 2.1% in Q4. @welt pic.twitter.com/S4Zn3pgrlC As you can see, America’s economy also grew modestly in Q1 2016, and actually shrank in Q1 2014. The first three months of 2015 weren’t amazing either. 1.48pm BST 13:48 Here’s Associated Press’s take on the US growth figures: The U.S. economy turned in the weakest performance in three years in the January-March quarter as consumers sharply slowed their spending. The result repeats a pattern that has characterized the recovery: lackluster beginnings to the year. The Commerce Department says the gross domestic product, the total output of goods and services, grew by just 0.7% in the first quarter following a gain of 2.1% in the fourth quarter. The slowdown primarily reflected slower consumer spending, which grew by just 0.3 percent. That was the poorest showing in more than seven years. Analysts blame in part the unusually warm winter, which meant less spending on utility bills. Economists believe the slowdown will be temporary. They forecast GDP growth will rebound to 3% or better in the current quarter. 1.38pm BST 13:38 US economic growth falls to lowest pace since 2014 Breaking! America’s economy has slowed sharply, posting its weakest growth in three years. US GDP rose by an annualised rate of just 0.7% in the first three months of 2017. That’s equal to a quarterly rate of less than 0.2%, and means that the first growth figures of the Trump administration are a disappointment. This is a sharp slowdown compared to the final quarter of 2016, when the US economy grew at an annualised pace of 2.1%. US misses! Economy grew at 0.7% pace in 1Q; less than 1.0% expected. Slowest pace in 3yrs. https://t.co/bstAS6fvlD pic.twitter.com/4QQcAx4j4e As in the UK, consumer spending was partly to blame, with car sales rather weak. Here’s Bloomberg’s snap take: The U.S. economy just grew by its slowest pace in 3 years. https://t.co/dBpaAGO8aA pic.twitter.com/9xQawUoBja 1.25pm BST 13:25 Three down, one to go.... After disappointing GDP figures from the UK and France, but stronger growth in Spain, we’re now turning to America to see how its economy fared in the first quarter of this year..... 1.21pm BST 13:21 Summary: UK growth misses forecasts Time for a quick recap of this morning’s UK growth report. Economists are warning that the Brexit slowdown has begun, after Britain’s economic growth has more than halved to its lowest rate since the EU referendum. UK GDP grew by just 0.3% in January to March, down from 0.7% in the previous quarter. That’s a weaker performance than the City expected. The service sector suffered the brunt of the slowdown, as rising prices hurt the retail, hotels and restaurant sector. The data show that the drop in the pound since last summer is now hurting the domestic economy. But manufacturing grew by 0.5%, suggesting sterling’s depreciation has also boosted UK factories. Chancellor Philip Hammond has said that the UK economy remains resilient. But shadow chancellor John McDonnell, and TUC head Frances O’Grady, have both warned that Britain faces a new cost of living squeeze. Sam Tombs of Pantheon Economics says the consumer-driven slowdown has begun, as incomes are hit by slowing employment and wage growth as well as rising inflation. One quarter of slow growth is not definitive proof that the economy is on the ropes. But the pressure on consumers’ incomes looks set to build this year as retailers pass on higher import prices; we still expect CPI inflation to exceed 3% in the second half of this year. The British Chambers of Commerce fears that the UK is entering a period of sluggish growth, just as the Brexit negotiations begin. With growth unlikely to pick up, Barclays predict UK interest rates will remain on hold until at least the end of 2018. Updated at 1.40pm BST 12.49pm BST 12:49 The pound has not been rattled by the slowdown in UK growth. Instead, sterling hit a new seven-month high of $1.2957 after the GDP figures were released. The pound is now on track for its best month since the Brexit vote last June: As mentioned earlier, Bank of America Merrill Lynch has become the latest bank to revise its pound forecasts higher. BAML currency analyst Kamal Sharma told clients that The announcement of an 8th June general election was a game-changing event for sterling. Sterling will face Brexit challenges but its day of reckoning has been pushed further into the future.” BAML now expect the pound to bottom out at $1.25 in the current quarter and finish the year at $1.27, compared with their respective forecasts of $1.15 and $1.19 previously. 12.25pm BST 12:25 The chancellor has now tweeted about the GDP figures: Choice facing the British ppl: strong & stable Govt w/ T May to lock in econ progress vs J Corbyn's coalition of chaos-a risk to our economy 12.18pm BST 12:18 This chart, from CBI economist Alpesh Paleja, shows why the UK growth rate almost halved in the last quarter. Detailed sector breakdown of slower Q1 UK GDP growth. Weakening in consumer-facing sectors chimes with recent deterioration in real earnings pic.twitter.com/zi1B1QMWMl As you can see, the retail and hospitality sector (in green) had been a key driver of growth in October-December, but shrank in January-March. 12.02pm BST 12:02 The looming shadow of Brexit means the UK economy is unlikely to accelerate over the next couple of years, warns Morgan Stanley economist Melanie Baker. She writes: We expect this slower quarterly pace of growth to persist in 2017, reflecting our assumption that higher inflation will dampen real consumer spending growth and an assumption of subdued business investment as Brexit approaches As this chart shows, Morgan Stanley predict growth could inch up to 0.4% in April to June, but then dipping back to around 0.3%: |