The U.S. economy expanded at its slowest pace in three years in the first quarter of this year, according to government data issued Friday morning, as spending by consumers grew at a slower pace and government outlays fell.
America’s gross domestic product, a broad measure of economic growth, grew by just 0.7 percent in the first three months of 2017, a significant slowdown from the previous quarter.
The report highlights the challenge this administration — which marks Trump’s first 100 days in office on Saturday — will face trying to meet its target rate of 3 percent economic growth.
A rapid pace of economic expansion is crucial for Trump’s broader economic agenda. He plans to aggressively reduce taxes, which could leave the federal government short trillions of dollars in revenue unless the budget is bolstered by strong economic growth.
Consumer spending expanded in the quarter, though it grew at just 0.3 percent, the slowest pace since 2009. Reduced spending at all levels of government, as well as a strong dollar that weighed on exports and increased imports, brought down the official estimate. Trump has said that closing the gap between imports and exports is one of his chief priorities.
Markets opened on a slide Friday. The Standard & Poor’s 500 index had fallen 0.05 percent and the Dow Jones industrial average was down 0.1 percent by midmorning.
Auto sales were also weak in the first quarter, but Preston says that isn’t too much of a cause for concern. “Sales have just been so strong in recent quarters, we were due for a bit of a breather,” she says.
One bright spot for Trump was a rebound in business investment, driven by the construction of new oil rigs. Oil prices have gradually ticked up over the past year from the ultra-low levels seen in early 2016, making new investments economical once again.
The report contains the first official estimates of economic growth under Trump and was coincidentally released on the 99th day of his new administration. The president and his aides have tried to show demonstrable progress on his chief priorities, including economic issues, before he concludes his first 100 days in office.
Some say the weaker growth is partly due to persistent measurement issues, which have caused the government to underestimate growth in the first quarter for many years — and reflected poorly on other presidents in their first quarter in office.
In the fourth quarter of 2016 the final full quarter of President Barack Obama’s tenure, the economy grew by 2.1 percent, federal economists reported last month.
Some economists expect the pace of growth to rebound in the second quarter. All the same, the disappointing figure suggests a potentially worrisome gap between expectations for the new administration and the reality of how the economy is performing.
Surveys show that consumer and business confidence have soared since the November election, creating one of the biggest divergences in recent memory between soft data — measurements of how people feel about the economy and their future — and the hard data that government statisticians release each month.
Hard data has painted a more mixed picture. In the first two months of the year, the number of jobs added to the U.S. economy surpassed expectations. But the number of new jobs created slumped in March, partly due to a snowstorm that prevented some Americans from working. Some economists worry about sluggish retail sales, which indicate consumers may be saving rather than spending.
Spending could be restrained further if the Federal Reserve continues with its plan to hike interest rates two more times this year, after already raising rates at its March meeting. Higher interest rates will mean consumers end up spending more on credit card debt and big-ticket items purchased through loans, like automobiles.