The US economy slowed dramatically in the first three months of the year, according to official data. GDP expanded at an annual rate of 0.7% in the first quarter - the slowest rate since the first quarter of 2014, which is unwelcome news for President Donald Trump who, during his election campaign, made a pledge to raise growth to 4%.
In a bid to fulfill that promise, on Wednesday the White House proposed slashing the rate of corporation tax. Treasury Secretary Steven Mnuchin unveiled President Trump's tax blueprint, which aims to cut the business tax rate from 35% to 15%. The plan also proposed an incentive for companies to bring back money held overseas and a cut in tax rate for individuals, although the plans were light on detail.
US GDP figures are typically weaker in the first quarter, so this reading is in line with the seasonal trend, said Nancy Curtin, chief investment officer at Close Brothers Asset Management. We haven't yet had the expected fiscal stimulus from Trump, the effects of which may not be seen until the end of this year or the start of 2018.
The annualized first quarter growth rate of 0.7% was less than the 1% analysts had been expecting, and a slowdown from the 2.1% growth rate seen in the final quarter of last year. The slowdown was down to stagnant consumer spending, economists said.
Household spending was held down by a drop back in motor vehicle sales from a near-record high at the end of last year and the unseasonably warm winter weather, which depressed utilities spending, said Paul Ashworth, chief US economist at Capital Economics.
But he thinks consumer spending will rebound as personal income showed healthy growth and data suggests that consumer confidence remains high.