In the first three months of 2018, consumer spending, the main engine of growth, rose just 1.1%, its weakest pace in almost five years, following a 4% gain in the fourth quarter of 2017, which was the biggest in three years.
These factors were partially offset by a rise in inventories and a narrowing of the trade deficit.
Quarter four GDP was 2.9 percent.
The inflation rate increased to 1.8% from 1.7% year over year, a reflection of the recent uptick in prices.
Friday's report is the first look at economic growth in the second year of President Donald Trump's first term in the White House. The tax cuts came into effect in January.
According to Reuters, while despite the weak start to the year, the lower corporate and individual tax rates should lift annual economic growth to the administration's 3% target.
James Knightley, Chief International Economist at ING, noted the first quarter is typically the worst quarter for GDP growth, despite seasonal adjustment. The CBO now expects GDP to be $6.1 trillion bigger by 2027 than it did before the tax cuts.
Federal Reserve officials are likely to shrug off the first-quarter performance.
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The slowdown in USA consumer spending reflected slower auto sales as well as purchases on clothing, footwear, food and beverages, according to the report. The figure will be revised twice in the next couple of months as more data becomes available. Today's growth reading is the first...
Wall Street Journal Global Economics Editor Jon Hilsenrath on first-quarter GDP. Private-sector wages and salaries advanced 2.9% from a year earlier, the most of the expansion, after a 2.8% increase.
"The biggest question is what's going to happen in the second quarter", said Jacob Oubina, senior USA economist at RBC Capital Markets.
The dollar initially rose against a basket of currencies after the data, but gave up gains to trade little changed.
In addition to the slowdown in consumer spending, the USA first-quarter GDP report showed cooling in business-equipment spending and residential investment, with the government citing a downturn in brokers' commissions on home sales. This likely reflects delayed tax refunds.
Households also boosted savings, which bodes well for a pickup in spending. Analysts expect growth to surpass 3 percent in the current quarter. The cooling in equipment investment comes as the stimulus from a recovery in commodity prices is fading. Housing investment was unchanged from the prior quarter following a 12.8 percent gain. With many households getting their tax returns this month and seeing more money back following the passage of the Trump administration's income tax plan, spending is expected to rebound by the second quarter. His goal was derailed in the first three months as consumers trimmed spending.
Nonresidential fixed investment, or spending on equipment, structures and intellectual property, increased at a still-solid 6.1% annualized pace, contributing 0.76 percentage point to growth.