U.S. Gross Domestic Product

U.S. Economy Off to Rocky Start in 2017

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Home sales were one of the few bright spots spots in the economy as residential investment grew at a 13.7% rate.

The U.S. economy barely grew in the first quarter of 2017 as consumer spending, a key driver of economic growth, plunged to its lowest level since 2009.

The world's largest economy grew at a paltry 0.7% for the first three months of 2017, according to the advance estimate of U.S. gross domestic product (GDP) released yesterday by the Commerce Department.  Consumer spending, which has been a major driver of the marginal growth the United States has experienced in recent years, fell 91% from the previous quarter for its lowest rate since the fourth quarter of 2009 when it came in at zero.

Automobile sales fell sharply in the first quarter led by Ford Motor Co. which posted a 35% drop in first-quarter profit, according to the Wall Street Journal.  Major household products companies such as Proctor & Gamble Co. also experienced quarterly declines.  The huge decline in consumer spending runs contrary to a rise in consumer sentiment and a continually rising stock market.

The two bright spots for the U.S. economy came from the supply-side as residential investment increased 13.7%, the largest since mid-2015 and business investment increased at a 9.4% rate, the largest since the fourth quarter of 2013.  The increase in business spending is the first real sign that the election of President Donald Trump is having a positive impact on the economy.

Home sales have been a catalyst of growth in recent months as interest rates have stayed low and more people decide that home ownership is a better investment than renting.  Sales of previously built homes reached their strongest level in a decade in March, the National Association of Realtors said last week.  

Government spending fell 1.7% led by a drop in defense spending that was initiated by the previous Obama Administration.  President Trump has pledged to dramatically increase defense spending under his administration.  Exports increased at 5.8% annualized rate, a huge improvement from the 4.5% decrease registered in the fourth quarter of last year.   

It was the third straight quarterly drop for GDP, which is the total amount of goods and services produced by an economy.  In fact, only once in the past 10 quarters has U.S. GDP risen above the 3% mark, as the accompanying graph illustrates.

Although the 0.7% is an advance estimate that will more than likely be revised, possibly upward if recent trends hold, the abysmal rate is yet another reminder of the tepid growth rate of the U.S. economy under President Obama who was the only president since the Great Recession in 1930 to never achieve an annual growth rate of at least 3%.

The United States broke the $19 trillion mark for the first time as current-dollar GDP now stands at 19,007.3 billion.