US Economic Growth Cools In First Quarter

By Sam Fleming and Adam Samson

The US economy grew at its slowest pace in two years during the first three months of
2016, raising questions over the durability of its seven-year expansion at a time of global
uncertainty.
Gross domestic product rose 0.5 per cent - less than half the rate of the previous quarter - thanks
to falling corporate investment and lower exports. The numbers were also held back by a
deceleration in consumer spending growth, despite rising personal incomes.
The figures reflect a cautious mood after turbulent global economic and financial conditions
early in the year. They will strengthen calls for the Federal Reserve to tread carefully before
lifting interest rates again. The central bank raised rates for the first time in almost a decade last
December. The Fed this week left policy unchanged but did not give a firm signal as to when it
next expects to tighten monetary policy.
We have been slowing down since last year - this is not a one-quarter phenomenon, said
Joseph LaVorgna at Deutsche Bank. It is surprising that the consumer has not done better given
strong jobs growth and low energy prices.
The deceleration comes amid sluggish growth around the world, with the International Monetary
Fund this month cutting its global forecasts for the fourth time in a year.

Worries about Japans outlook were heightened yesterday when the Bank of Japan held rates
despite data showing the country had tumbled back into deflation.
Some economists said US growth rates might recover from weak first-quarter numbers, which
missed forecasts of 0.7 per cent. Sluggish starts to the year are not unusual, prompting some
analysts to argue there are problems with how statisticians adjust for seasonal factors. The US
grew only 0.6 per cent in the first quarter of 2015 and shrank 0.9 per cent at the start of 2014.
Brian Schaitkin, an economist at the Conference Board, said: Since the end of the Great
Recession . . . first-quarter GDP growth figures have shown a consistent pattern of being weaker
than those for the rest of the year, which suggests that a small rise is in store in 2016.
Growth in household spending - the motor of the US recovery - slowed to 1.9 per cent in the first
quarter from 2.4 per cent previously, despite a healthier 2.9 per cent increase in disposable
income.
The fall in corporate investment was driven by energy companies cutting back on capital
spending owing to the decline in oil prices. That has ricocheted to the factory sector, with the
demand for items used by oil groups falling. The US trade deficit also dragged on the numbers as
the surging dollar crushed exports, which fell 2.6 per cent.
The data come just a day after the Fed warned that growth in economic activity appears to have
slowed even as the labour market continues to improve. We have been slowing down since last
year - this is not a one-quarter phenomenon.