Consumer spending is slowing, but investment is picking up

11th May 2017

Consumer spending is slowing, but investment is picking up

US GDP expanded at an annual rate of 0.7% in the first quarter – the slowest rate since the first quarter of 2014. Should this be a worry for investors into the US economy?

We have seen consumers driving most of the economy’s spending growth since the end of 2015, but consumption has now slowed abruptly. Falling motor vehicle sales alone have taken almost half a percentage point off the growth rate, and weak sales of durable goods would usually signal a hesitant consumer. Fortunately, corporates have stepped in to take up some of the slack left by consumers with non-residential fixed investment growing at a 9.4% annualised rate, the highest since 2013.

We believe the next quarter’s GDP figures to be healthier, as it is typically of Q1 data to be low, and with the combination of the Trump administration’s promised tax cuts, consumer spending should pick up through the rest of 2017 – giving us a likely outcome that sees the economy remaining hewed to its trajectory of about 2% annual growth.

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