Consumers Spent Less on Footwear in the First Quarter of 2018

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Real gross domestic product (GDP) increased at an annual rate of 2.3 percent in the first quarter of 2018 (table 1), according to the "advance" estimate released by the Bureau of Economic Analysis.

The San Francisco Federal Reserve even published a 2015 report about the "puzzle of weak first-quarter GDP growth" that suggested sluggish data to start the year was more of a statistical problem than a signal of a struggling economy. Goods spending declined 1.1 percent at the annual rate in the first quarter, pulling back from the 7.8 percent gain in the fourth quarter (the strongest quarterly gain in almost 12 years). Business and consumer confidence remain high.

The latest Commerce report was the first since President Trump's tax cuts, including a reduction in corporate taxes created to boost investments and jobs, took effect on January 1.

Weakness in the GDP report also was evident in government outlays and consumer spending, which slowed to a 1.1 percent gain from 4 percent in the final quarter of 2017.

The Trump administration has promised 3 percent GDP growth or better, due in large part to the tax cuts that were passed late past year.

On the global front, net exports swung back to be a positive contributor in the first quarter, adding 0.20 percentage points, after subtracting 1.16 percentage points from GDP in the fourth quarter.

According to the Commerce Department, GDP increased at a 2.3% annual rate, above the 2% analysts polled by Reuters were expecting. The core PCE price index rose at a 1.9 percent pace in the fourth quarter. The Commerce Department's Bureau of Economic Analysis is now addressing the issue by reviewing its methodology. The first-quarter 2018 reading was the slowest since 2013 and reflected a decline in vehicle, clothing and footwear purchases.

In a separate report in Friday, the Labor Department said wages and salaries shot up 0.9 percent in the first quarter.

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Government spending slowed during the quarter, adding 0.2% to growth.

"It is increasingly hard to argue that the 2 percent inflation target hasn't already been breached", said Steven Blitz, chief US economist at TS Lombard in NY.

While the administration expects the economy to grow at rates of 3 percent for the rest of this decade, private analysts are less optimistic.

Last quarter, spending grew at a robust 4% clip.

The economy's stronger growth in the past year as a whole appears to be adding to inflation pressures. Housing investment was unchanged from the prior quarter following a 12.8% gain. Employers around the country are reporting difficulty finding skilled workers with the unemployment rate at 4.1 percent and headed lower. Remember, the US central bank raised interest rates last month in affirmation of the strong economy and labor market and they forecast at least two additional rate hikes this year.

With the continued decrease, the ten-year yield pulled back further after close above the key 3 percent level for the first time in well over four years on Wednesday.

Muted household spending contributed to the drop-off.

At the same time, Boeing said it's seeing solid global demand, while United Parcel Service said the USA economy is showing "healthy fundamentals".

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