US GDP beats expectations - but still falls by 0.7 per cent

Emma Haslett
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The slowdown is a disappointing performance for one of the world's strongest economies (Source: Getty)

US GDP fell by 0.7 per cent in the first three months of the year, official statistics published today showed - better than the 0.9 per cent drop expected by analysts, but nevertheless a disappointing performance.

The figure is a sharp fall from the 0.2 per cent growth originally estimated for the first quarter, although some analysts have blamed it on the way the US' statistics office seasonally adjusts GDP figures - over the past few years, first quarter growth has tended to be much lower than the following quarters.

However, there are signs the US economy, which in recent years has shown impressive recovery, is beginning to slow. Earlier this month, figures showed disappointingly flat retail sales in April, following a 0.2 per cent decline in March. That was reflected by a disappointing statement from retailer Macy's, which last week forecast lower second quarter profits.

Although economists had expected the US Federal Reserve to become one of the first major central banks to hike rates, there may now be less consensus a rise is imminent.

That said, Janet Yellen, the Fed's chairman, has struck a more positive note in recent weeks, suggesting data is likely to strengthen.

Chris Williamson, chief economist at Markit, said the question was not over whether it will rebound, but by how much.

“From a policy perspective, the first quarter lull is already history; it’s the extent of the rebound that will be critical in determining the timing of the Fed’s first move on interest rates.
“The decline has already been largely shrugged off as a temporary blip by policymakers, linked to extreme weather, port closures and what looks to be a regular pattern in the official data of the economy weakening at the start of the year. Survey evidence is already pointing to a second quarter pick-up.
"Markit’s flash PMI data, for example, have signalled robust growth, especially in the service sector. The monthly data are running at levels broadly consistent with two to three per cent annualised GDP growth in the second quarter. Job creation has also held up surprisingly well."
Nancy Curtin, chief investment officer at Close Brothers Asset Management, was also optimistic.
"n the ground, the indications are there that we are seeing a bounceback in the second quarter. Confidence has rebounded, the job market is buoyant and robust housing market data of late offers a much brighter outlook than the first quarter figures suggest.
"Equally, lower oil prices should contribute to an uplift in consumer spending, further boosting growth as the year progresses. Thanks to the fundamental strength of the economy, the Fed seems resolved to hike rates this year, although this will be patient and incremental, rather than drastic.”

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