Business World

Wednesday 20 September 2017

Hopes for US employment after growth of 3.2pc in first quarter

Peter Flanagan

Peter Flanagan

The US economy expanded at a 3.2pc annualised rate in the first quarter of the year as households spent more freely, setting the stage for gains in employment.

The increase in gross domestic product (GDP) was in line with estimates and capped the biggest six-month gain since 2003.

Consumers may play a more prominent role in the recovery, increasing the odds of a sustained rebound, as sales promote hiring. The Federal Reserve's preferred measure of inflation climbed at the slowest pace on record, highlighting why policymakers pledged to keep interest rates low.

"The recovery is durable," said Aaron Smith, a senior economist at Moody's Economy.com, before the report was published. "Consumer spending growth has remained solid thanks to more hiring and better financial conditions."

Following the 5.6pc growth in the fourth quarter of last year, the back-to-back gains marked the economy's best performance since the second half of 2003.

Consumers

Consumer spending, which accounts for about 70pc of the economy, rose 3.6pc last quarter, compared with 1.6pc in the prior three months. The increase was the biggest since the first quarter of 2007.

Spending added 2.6pc points to GDP. Household purchases dropped 0.6pc last year, the biggest decrease since 1974.

Household spending has "picked up recently", the Fed said this week.

The central bank's preferred price gauge, which is tied to consumer spending and strips out food and energy costs, rose 0.6pc, the lowest level since 1959 and down from a 1.8pc increase the prior quarter.

"Economic conditions, including low rates of resource utilisation, subdued inflation trends, and stable inflation expectations are likely to warrant exceptionally low levels of the federal funds rate for an extended period," policymakers said in this week's statement.

The unemployment rate is likely to have held at 9.7pc.

Irish Independent

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