US economy grows faster than expected

US construction workers Image copyright Getty Images

The US economy grew much faster than expected in the first quarter of the year, helped by a jump in exports and by firms building up stocks of goods.

The economy expanded at an annualised pace of 3.2% in the January-to-March period, well above analysts’ forecasts.

The economy has accelerated since the previous quarter, when it grew at a pace of 2.2%.

However, some analysts warned growth had been boosted by one-off factors, and could slow in the months ahead.

The growth figures – which are subject to revision in the months ahead – appeared to dispel any fears that the economy might have slowed since the end of last year.

Secretary of Commerce Wilbur Ross welcomed the data, saying: “The Trump economy has repeatedly defied the sceptics who predicted an economic downturn and has restored America’s position in the world as a consistent source of economic growth.”

Trade helped to boost growth in the first quarter, as exports rose while imports fell.

Companies also built up inventories of goods at the fastest rate since the second quarter of 2015.

However, consumer spending, which drives about two-thirds of economic activity in the US, grew by only 1.2% in the first quarter, down from a rate of 2.5% previously.

Fed faces ‘tricky summer’

Earlier this month, US President Donald Trump called on the US Federal Reserve to cut interest rates, claiming that the Fed had “really slowed us down” in terms of economic growth.

In March, the Fed had indicated that it did not plan to raise interest rates – which currently stand between 2.25% and 2.5% – for the rest of 2019.

Ian Shepherson, chief economist at Pantheon Macroeconomics, said the “strong” GDP report meant the Fed could have a “tricky summer”.

“The problem for the Fed now… is that if growth continues at anything like this pace, the labour market will tighten much further this year, and the question of rate hikes will be back on the agenda”.

However, Paul Ashworth, chief US economist at Capital Economics, warned that there were “plenty of causes for concern” behind the headline growth figure.

As well as the boost from trade and inventories, he noted growth was also lifted by government spending on highways and roads.

“So taking out the over-sized boosts from net trade, inventories and highways investment, which will all be reversed in the coming quarters, growth was only around 1.0%,” Mr Ashworth says.

“Under those circumstances, we continue to expect that overall growth will slow this year, forcing the Fed to begin cutting interest rates before year-end.”

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