US GDP Figures Raise Eyebrows

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What's going on?

Data out on Friday showed that the US economy grew at its slowest pace in three years during the first quarter of 2017 although not everyone agrees on the accuracy of the data.

What does this mean?

The official government data showed that the US economy grew at an annualized rate of 0.7% in the first quarter, which is significantly below the 2% annual growth weve seen over the past five years or so. However, previous years have also recorded a weak first quarter, with faster growth in quarters later in the year making up for it (the government agency responsible has acknowledged that there are seasonal errors in its methods). With several other economic indicators suggesting that growth was more robust than 0.7%, investors arent getting too nervous yet.

Why should I care?

The bigger picture: Spending by businesses picked up which could be a very good sign.

Spending on business investment, which means things like building new factories or buying new equipment, rose at its fastest pace in three years. Investment of this kind is particularly important because it can lead to a longer-term improvement in economic growth: better machinery leads to more efficient production and, therefore, improves the performance of the economy for years to come.


For the markets: Consumer spending is a big question mark.

Consumer spending makes up about two-thirds of economic activity in the US and it barely increased in the first quarter. Part of this was likely due to one-off factors, like Americans tax rebates coming later this year and an unusually warm winter causing a drop in spending on heating. But weakness in auto sales and poor recent results from big consumer-facing companies, like Johnson & Johnson, suggest that problems with the US consumer may be more severe. It will be a crucial area to watch in the coming months as investors attempt to judge the real rate of economic growth in the US.

Originally posted as part of the Finimize daily email.

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