US economy posts 3-year low growth of 0.7% in the first quarter of 2017

US economy posts 3-year low growth of 0.7% in the first quarter of 2017

Consumer spending and govt expenditure took a beating

The Dollar Business Bureau

Contrary to Trump's promises of ushering an era of 3% annual economic growth, the first quarter of his Presidency saw US growth rate decline to the lowest in three years. Sluggish consumer demand and a fall in government expenditure caused GDP growth in the first quarter of 2017 to slump to 0.7%, as against 2.1% in the previous quarter (December 2016). 

Unable to meet the predictions of 1.1% made by analysts, growth in this quarter was marginally lower than that of the first quarter of 2016, which stood at 0.8%. This has been the worst quarterly economic performance since the first quarter of 2014 when growth experienced a 1.2% drop. 

While a contraction of 4% in defence expenditure caused government spending to fall to a four-year low, consumer spending growth plunged to 0.3% - worst in the last 8 years. Spending on durables and services took a hit in particular. 

Investments increased at 4.3% as against 9.4% in the last quarter. 

It may be of some solace that the last few years suggest a pattern of growth that picks up in the latter part of the year after a slow first quarter. Moreover, since none of Trump's radical policies has taken effect yet, it may well be another year before their impact can be seen in the economy. 

It may be too soon to tell, but these sombre results may impinge soaring stock market indices riding high on expectations of new nationalist policies driving economic growth. 

As growth tumbles, reforms fail to get past Congress, and foreign policy borders on confusion and unpredictability; Trump's first quarter report card doesn't hold much reason to cheer. However, the Trump administration looks keen on turning things around with a legendary tax reform aimed at cutting corporate taxes from 35% to 15%. The resulting rise in economic growth is expected to compensate for the loss in tax revenue – although the rationale is not widely accepted by experts. 

The Dollar Business Bureau - Apr 29, 2017 12:00 IST