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 Japan’s 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’.
