U.s. growth cools to 2.3% while compensation costs accelerate crain’s cleveland business grade 6 electricity project


U.S. economic growth cooled last quarter as consumers pulled back following outsize spending in the prior period, though solid business investment cushioned some of the weakness and employee-compensation costs accelerated amid a tight job market.

Gross domestic product, the value of all goods and services produced in the nation, rose at a 2.3% annualized rate after climbing 2.9% in the prior quarter, the Commerce Department reported Friday, April 27. The median forecast of economists surveyed by Bloomberg called for a 2% gain. A separate Labor Department report showed that employment costs rose more than expected in the first quarter and a measure of private wages had the biggest annual gain since 2008.

While GDP growth was the best for any January-March period since 2015, it’s a step down from three quarters of GDP growth above or near 3%, and a reminder that the first quarter remains plagued by data quirks. Analysts expect a rebound as tax cuts take hold amid a strong job market, though tailwinds such as low inflation and borrowing costs are starting to dissipate, and trade tensions represent a headwind.

"The biggest question is what’s going to happen in the second quarter," said Jacob Oubina, senior U.S. economist at RBC Capital Markets. Delayed tax refunds may have held down consumer spending, which is likely to rebound in the second quarter as incomes rise, he said. "The labor market is seemingly still getting better, wages are finally starting to increase and you’re getting a tax cut on top of all that."

The 2.3% pace of GDP growth is still faster than what the Federal Reserve sees as the economy’s long-term potential rate, and officials have previously said they view the first-quarter slowdown as transitory, with the economy poised to reach a milestone in May — the second-longest expansion on record. Investors expect the central bank to raise interest rates in June for the second time this year.

Even so, the results underline the difficulty of achieving President Donald Trump’s goal of 3% sustained growth, despite corporate and individual tax cuts that went into effect in January. Other figures on Friday cast a shadow over the strong, synchronized global upswing: Europe’s economy lost momentum in the first quarter as expansions slowed from the U.K. to France, partly because winter storms ripped through the region.

Consumer spending, the biggest part of the economy, rose 1.1%, matching estimates and marking the smallest gain since 2013. Business-equipment spending and residential investment also cooled, with the government citing a downturn in brokers’ commissions on home sales. Spending on nonresidential structures and intellectual property accelerated in the period, limiting any broader slowdown.

Government spending slowed to a 1.2% gain from 3%, as both federal and state and local outlays cooled. Trade added 0.2 percentage point to growth, while inventories added 0.43 point, a reversal from the prior quarter, when they subtracted a combined 1.69 points. Trade and inventories are two of the most volatile components in GDP calculations.

The report also showed price pressures are picking up. The GDP price index rose 2% in the first quarter. A measure of inflation, tied to consumer spending and excluding volatile food and energy costs, advanced at a 2.5% annualized pace, the fastest since 2011, adding to signs that price gains are picking up.

The Labor Department figures showed that the employment cost index, which includes wages and benefits, rose 0.8% from the previous quarter, topping the median estimate of 0.7%. Private-sector wages and salaries advanced 2.9% from a year earlier, the most of the expansion, following a 2.8% increase.