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GDP report: US economy posts strong first quarter, but spending spending slows



But digging into the details of the report reveals that weakness remains in the US economy.

The Bureau of Economic Analysis reported that the gross domestic product grew at an annual rate of 3.2%, substantially above the forecasted 2.1%, buoyed through stronger government and local government spending, lower imports, and business inventory.

The prize is a first estimate, and it can be revised as more data comes in over the next few weeks. It would have been even stronger, BEA concluded, without the government's closure, that deducted 0.3 percentage points from the growth in the first quarter. Federal spending was flat, as an increase in military spending was offset by a decline in non-defense spending.

The contribution of state and local governments was largely due to highway and road construction, which sites have taken on while waiting for an infrastructure package from the federal government.
However, underlying components in the report indicate that an expected slow decline is still ongoing.

Growth was driven in part by higher inventories, especially in the manufacturing industry, which may indicate that companies are saving goods rather than selling them. Higher stocks can often slow down growth in the next quarter. Domestic private sales, which pull out imports and exports, as well as government spending, weakened to half of the previous quarter ̵

1; the smallest gain in three years.

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Imports collapsed, partly because businesses had rushed to take in goods from abroad in advance of Trump administration tariffs last year. "With warehouses and backlots now filling up, businesses no longer need to buy," wrote Bernard Baumohl, chief global economist with Economic Outlook Group. "Worse, many companies now fear that it will take much longer to relieve all of this inventory, given the seemingly underlying weakness of consumer and business needs.

At the same time, consumer spending, in part due to weak sales of goods, reduced particular light Business investment has also slowed down from the previous quarter, with agricultural machinery and office furniture posting the biggest downturns, with the largest increase in business investment coming from intangible property products, while exports are expected to slow and face a stronger dollar.

"If we Taking the big increases from net trading, inventories and highways, all of which will be reversed in the coming quarters, growth was only around 1%, "wrote Paul Ashworth, US chief economist with the research company Capital Economics. Circumstances, we continue to expect total growth will slow this year, forcing the Fed to start cutting interest rates before the year shift. "

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Defenders are already keying their expectations. Morgan Stanley's financial studies revised their second quarter estimate to 1.1%, for example, referring to stockpiling. The conference board is a bit more optimistic, and forecasts 2.5% growth in the next quarter, but they also predict a decline of 2.3% in the second half.

A Threatening Question: Will these surprising figures change the Federal Reserve's stated plans to keep the interest rate hike for the rest of the year? Not if they look at the underlying figures, writes Joseph Brusuelas, chief economist with the accounting firm RSM US. Inflation is well below the Fed's 2% target. Tier 1 capital expenditure – a key statistic that eliminates volatile food and energy prices – rose by only 1.3% compared to the first quarter in the first quarter.

"The Federal Reserve will look right past the 3.2% quarterly growth estimate and focus on the composition of growth, pointing to a slowing trend among softer inflation," wrote Brusuelas. "This data strengthens the cautious break The Fed is engaged, and forward-looking investors and finance directors should expect no rate hike or rate cut to 2021."


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