Consumer spending, which accounts for more than two-thirds of the economy, eased to a 1.1% rate last quarter, its weakest in almost five years.
The Commerce Department reported Friday that the gain in the gross domestic product, the economy's total output of goods and services, followed a 2.9 percent rise in the fourth quarter and gains above 3 percent in the previous two quarters. The Federal Reserve targets 2% inflation and has been raising short-term interest rates to prevent the economy from overheating. Domestic demand increased at a 1.7 percent rate, the slowest in two years, after rising at a brisk 4.8 percent pace in the final three months of 2017. First-quarter GDP tends to be sluggish because of a seasonal quirk.
Economists expect growth will accelerate in the second quarter as more households feel the impact of the Trump administration's $1.5 trillion income tax package on their paychecks.
Why it matters: Ultimately, a single data point, itself an initial estimate, covering a few months can't tell us definitively about the success or failure of the tax cuts, or anything else for that matter. As a result, goods spending subtracted 0.24 percentage points from real GDP growth for the quarter.
"Tax cuts and government spending increases should lead to better overall economic activity", said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania. Construction-equipment maker Caterpillar, a bellwether for growth, said this week that its first-quarter adjusted profit per share "will be the high water mark for the year", sending its shares down the most since mid-2016. The winter months have historically been the weakest quarter of the year.
Businesses also built inventories in the first quarter, which added to growth.
In a separate report in Friday, the Labor Department said wages and salaries shot up 0.9 percent in the first quarter. These data were mostly consistent with that optimism, as business spending was one of the larger bright spots in the first quarter GDP data. Investment in new structures almost doubled to 12.3 percent.
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Consumer spending increased by 1.1% in the first quarter, well below the fourth quarter's rapid 4% rate. 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 tax cuts, focused on corporations and the wealthy, kicked in on January 1, and employers adjusted worker paychecks to reflect the lower tax rates in February.
"The biggest question is what's going to happen in the second quarter", said Jacob Oubina, senior US economist at RBC Capital Markets. The cooling in equipment investment partly reflects a fading boost from a recovery in commodity prices.
Investment in homebuilding was unchanged in the first three months of the year, reflecting a decline in brokers' commissions as an acute shortage of properties hurt home sales. Residential investment increased at a 12.8 percent rate in the October-December period.
But Trump and Republicans strongly criticized former President Obama for not having a single calendar year in which economic growth hit 3 percent.
At the same time, Boeing said it's seeing solid global demand, while United Parcel Service said the USA economy is showing "healthy fundamentals".
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.