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Household outlays increased at a 1.1% rate in the first quarter, pulling back from the fourth quarter, when they rose 4.0% and marking the smallest increase since mid-2013.

The U.S. economy likely slowed in the first quarter as growth in consumer spending braked sharply, but the setback is expected to be temporary against the backdrop of a tightening labor market and large fiscal stimulus.

James Knightley, Chief International Economist at ING, noted the first quarter is typically the worst quarter for GDP growth, despite seasonal adjustment.

The Commerce Department said real gross domestic product climbed by 2.3% in the first quarter compared to the 2.9% jump in the fourth quarter.

The Bureau emphasized that the first-quarter advance estimate released today is based on source data that are incomplete or subject to further revision by the source agency (see "Source Data for the Advance Estimate" on page 2).

Economists say statistical quirks, or so-called residual seasonality, have been behind some of the disappointing first- quarter GDP results in recent years.

An increase in business spending, however, helped offset consumer lulls.

Economists believe the combination of tax cuts and a tight labor market, which encourages employers to give more favorable pay and benefits to attract and retain workers, should boost spending in the coming months. Also, lower corporate tax rates and increased government spending will likely lift annual economic growth to President Trump's target of 3%.

The report said the consumer sentiment index for April was upwardly revised to 98.8 from the preliminary reading of 97.8. A measure of inflation, tied to consumer spending and excluding volatile food and energy costs, advanced at a 2.5% annualized pace, the fastest since 2011, adding to signs that price gains are picking up. The economy may expand 2.8 percent in 2018, according to the median of forecasts compiled by Bloomberg, before slowing in the following two years. That was less than the 3% rate of output growth during the final nine months of 2017, though above the 1.8% growth rate economists expected before the report. The decline in spending on vehicles and parts subtracted 0.42 percentage point from growth.

Current-dollar GDP increased 4.3 percent, or $211 billion, to a $19.9 trillion level.

The slowdown in USA consumer spending reflected slower auto sales as well as purchases on clothing, footwear, food and beverages, according to the report.

"Right now, consumers are cautious", Navy Federal Credit Union economist Robert Frick said in a note to clients, adding the drop in durable goods spending "points to consumers avoiding big ticket items to conserve cash".

Residential investment was also flat in the first three months of the year, possibly due to winter storms and higher short-term interest rates, according to analysts. Investment in new structures almost doubled to 12.3 percent.

With consumer spending slowing, inventories increased at a $33.1 billion rate in the first quarter, up from a $15.6 billion pace in the prior period. Nonresidential fixed investment contributed 0.76 percentage points to top-line growth, with positive spending on inventories adding another 0.43 percentage points.


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