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US GDP Growth Smashes Expectations, Hits Highest Level Since 2015

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The U.S. economy grew at a solid 3.2% annual rate in the first three months of the year, a far better outcome than expected, overcoming a host of headwinds including global weakness, rising trade tensions and a partial government shutdown.

The advance in the gross domestic product, the broadest measure of economic health, marks an acceleration from a 2.2% gain in the previous October-December period, the Commerce Department reported Friday.

However, about half the gain reflected two factors not expected to last — a big jump stockpiling by businesses and a sharp contraction in the trade deficit.

Still, the GDP gain surpassed the 3% bar set by President Donald Trump as evidence that his economic program is working.

Trump is counting on a strong economy as he campaigns for re-election.

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It was the strongest first-quarter growth rate since 2015. In recent years, GDP has been exceptionally weak in the first quarter.

There had been fears growth could dip below 1% this year due to a variety of adverse factors such as the December stock market nosedive, rising weakness in key economies overseas, the U.S. trade war with China and a 35-day partial government shutdown that ended in January.

But the economy shrugged off those concerns, helped by an announcement in January from the Federal Reserve that after raising rates four times last year, it was declaring a pause on further rate hikes.

That spurred a stock market rebound by easing concerns that the central bank might overdo its credit tightening and send the country into a recession.

Will the U.S. economy keep exceeding expectations?

Still, economists believe the current April-June quarter will not match the first quarter’s performance. Many are looking for GDP growth to slow to around 2% in the current quarter.

In the first quarter, inventory rebuilding added 0.7 percentage point to growth, while a falling trade deficit boosted growth by a full percentage point. Analysts think both of those factors will reverse in the current quarter.

Consumer spending, which accounts for 70% of economic activity, slowed to growth at a rate of just 1.2% in the first quarter.

In particular, spending on durable goods fell at a rate of 5.3%, the biggest decline in a decade, led by a sharp drop in light truck sales.

Government spending was up 2.4% as a big 3.9% gain in state and local spending — reflecting increases in highway construction — offset a flat performance for the federal government.

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The government estimated that the 35-day partial federal shutdown trimmed 0.3 percentage point from growth in the first quarter after trimming fourth-quarter growth by 0.1 percentage point.

For the year, economists believe GDP will expand 2.4%, down from last year’s 2.9% gain, as the boost from the 2017 tax cuts and increased government spending over the past two years start to fade.

The Western Journal has reviewed this Associated Press story and may have altered it prior to publication to ensure that it meets our editorial standards.

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