Decline in consumption leads to slowest US economy growth in 3 years

Decline in consumption leads to slowest US economy growth in 3 years
The US economy showed its weakest performance since 2014 in the first three months of the year after consumer spending sharply slowed and businesses invested less in inventories.

The country’s GDP increased at a mere 0.7 percent annual rate, down from 2.1 percent and 3.5 percent in the second half of 2016. Analysts surveyed by Reuters expected growth of 1.2 percent last quarter.

The decline in growth is due to the smallest increase in consumer spending since the end of 2009, which broadly mirrors fewer car sales. Consumer spending grew only 0.3 percent, reflecting a steep drop from the 3.5 percent gain at the end of 2016.

However, a decline in consumption spending is unlikely to take hold. In the winter, Americans spent less on home heating fuel, clothes and gasoline due to unseasonably warm weather in February.

At the same time, household finances are currently on the up, boosted by stock market gains, gradually rising wages as well as a strong labor market.

Cuts in government spending also had an impact on economic growth. Government spending dropped at a 1.7 percent rate as defense outlays declined by 4 percent, the biggest drop since the fourth quarter of 2014.

Moreover, businesses scaled back on inventory production not to get stuck with lots of unsold goods on warehouse shelves. Companies accumulated stock at a rate of $10.3 billion, down from $49.6 billion in the previous quarter.

Investments in home building rose by 13.7 percent from January to March, marking the construction sector as a major driver for the US economy.

Spending on mining exploration, wells, and drilling rigs swelled at a record pace of 449 percent after growing 23.7 percent in the fourth quarter of 2016.

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Spending on nonresidential structures accelerated by 22.1 percent in the first quarter after declining by 1.9 percent in the previous quarter.

Exports increased 5.8 percent, outpacing the 4.1 percent rate increase in imports, leaving a smaller trade deficit that reportedly had a neutral impact on GDP growth.