US economic growth slowest in three years

Business & Economy 01 May 2017
US economic growth slowest in three years

US economy grows at slowest rate in three years

The country's GDP fell well below expectations, putting Donald Trump's economic growth targets at risk.

Image: The results may put a halt to any plans the Federal Reserve may have had to raise interest rates next week

By Clare Downey, Business Reporter

The US economy grew at its slowest rate since the beginning of 2014 during the first three months of this year, putting President Donald Trump's pledge to raise GDP to 4% during his term at risk.

Analysts had predicted that the country's Gross Domestic Product (GDP) would increase by 1.1% at an annual rate, but it only reached 0.7%, well below expectations.

The US's GDP growth for October to December 2016 had been 2.1%, almost a percentage above the 1.2% forecast.

Much of the decline in the three months to March appears to have been driven by a sharp slowdown in consumer spending, which accounts for around 70% of US GDP and had its poorest showing in seven years, growing by just 0.3%.

A warmer winter leading to lower utility bills is one likely reason for the decline, alongside climbing inflation levels.

Donald Trump promised during the election campaign that he would get the economy "back on track" and increase annual economic growth to 4%.

Donald Trump
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The pledge became an official White House policy when Mr Trump was inaugurated but experts have long contended the target may be hard to hit unless productivity among American workers is increased.

The results may also put a halt to any plans the Federal Reserve may have had to raise interest rates during a meeting next week.

The central bank has already increased rates to a range of 0.75% to 1% through three separate increases in the past 18 months, including two rises since last December.

Fed Chair Janet Yellen has previously said she expects to raise interest rates twice more this year and three times in 2018.

US Fed chair Janet Yellen speaking after the Fed's latest rates decision on 21 September 2016
Video: US Federal Reserve raises interest rates

"Fed rate hike probability is a major focus among investors after the US GDP data which was underwhelming", said Naeem Aslam, chief market analyst at Think Markets.

"The US consumer spending is the most sensitive part of the US economy and the US GDP data has shown a very disappointing number.

"The Fed is not going to be hawkish when they see that the consumers are not digging deep into their pockets."

The Fed decision is also likely to be affected by jobs and unemployment figures due to be published next Friday, which are seen as another key benchmark of US economic health.

Jobs figures for the past several months have generally been strong, with the unemployment rate down to a 10-year low of 4.5%.

But fewer jobs were added to the economy overall in March, with just 98,000 new roles created compared to the expected 180,000.

Should the data released next week show the downward movement is a trend rather than a temporary blip, Mr Trump is likely to face even more difficulty in reaching his economic targets than previously expected.

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