The American economy grew slightly less than initially estimated in the first three-months of 2018, the Commerce Department said Wednesday.
Gross domestic product increased at a 2.2 percent annualized rate, according to the department’s second estimate of first-quarter economic growth. The first estimate had GDP growing at a 2.3 percent rate. The economy grew at a 2.9 percent rate in the fourth quarter of 2017.
More recent economic data suggests growth has picked up pace in the second quarter, with consumer spending, business investment in capital equipment, and industrial production all increasing. Economists expect the $1.5 billion tax cut to boost GDP growth closer to the Trump administration’s 3 percent target.
The downward revision was in line with the forecasts of economists, according to Bloomberg.
Wages grew faster than estimated earlier, rising $119.5 billion in the first quarter. That was $3.1 billion higher than earlier estimates. That pushed Gross Domestic Income, another measure of economic growth, to 2.8 percent in the first quarter. This measure of the economy grew at just 1.0 percent in the fourth quarter.
Despite the rising wages, overall economic growth was held back by a slow down in consumer spending. Consumer spending, which accounts for about two-thirds of the economy, slowed to t0 a 1.0 percent rate in the first quarter, down from the previous estimate of 1.1 percent.
This spending slowdown may have been an echo effect of the hurricanes of 2017, which pushed up consumer spending in the fourth quarter to a vigorous 4.0 percent as Americans replaced damaged cars and household items destroyed by flooding.
Inventories grew at a slower pace than estimated earlier, at a $20.2 billion rate compared with the $33.1 billion pace estimated in April. As a result, inventory investment contributed 0.13 percentage point to GDP growth instead of 0.43 percentage point.
Economists expect that smaller inventory build will reverse in the second quarter, boosting economic growth.
The trade deficit in the first quarter was revised up so that instead of trade adding to growth, it was neutral overall. Imports subtract from GDP while exports add to GDP, so a larger trade deficit tends to result in lower growth.
Home building investment fell at a 2.0 percent rate in the first quarter. It was reported as unchanged in the first estimate. The housing market has remained a source of weakness in the second quarter, according to most economic data released in recent months.
The tax cuts are already helping corporate profits. The government said that after-tax profits at U.S. businesses grew at a 5.9 percent rate in the January through March period, up from a 1.7 percent pace in the October through December period. That was the fastest pace of growth in profits since the first quarter of 2016, when corporate profits surged following the election of Donald Trump. The most recent boost reflected the cut in the corporate tax rate from 35 percent to 21 percent.
For several years, GDP has grown slowly in the first quarter. Some economists have begun to suspect that the official figures are underestimating growth in the first quarter. Financial markets have come to expect lower growth in the first quarter, which diminishes their reaction to lower growth figures.