Worrisome Signs Series: US heads for worst first quarter growth in three years

According to the Atlanta Fed’s GDP now model, the US economy grew at an annual pace of just 0.6 percent in the first quarter of 2017, which is the weakest pace of growth since 2014, when the economy shrank in the first quarter. Anyone thinking that the Trump Presidency and heightened optimism both among consumers and businesses, would deliver a faster economic growth immediately, should think again. Atlanta Fed revised its previous forecast of 0.8 percent. The Atlanta Fed’s GDPNow forecast was lowered as a result of factors including disappointing data on US auto sales, services sector employment growth, and March jobs data, which was much weaker than expected at just 98,000. Several research houses have noted the growing divergence between the soft data which are survey based and actual hard data. For example, a Bloomberg survey is still pointing at 2.5 percent growth in the first quarter compared to the 0.6 percent forecasted by GDPNow.

However, one must note that the US growth has long been weak in the first quarter, largely due to cyclical factors and adjustments. So it is not a very good indicator of the upcoming quarters. Nevertheless, a weaker growth would sharpen the attacks of the Trump opponents.