The economy also got a boost from housing for the first time in three quarters. Residential construction increased at a 11.6 percent annualized rate, contributing 0.42 percentage-point to growth.
While the boost from tax cuts and a strong labor market may provide support to the economy, growth may be less robust. GDP gains are projected to cool to 2.5 percent as early as this quarter, according to economists’ forecasts compiled by Bloomberg.
One reason is that household spending will be hard pressed to accelerate further. Wage gains remain tepid even with steady hiring and the lowest unemployment rate since 2000. Gasoline expenses are ticking up, consumer debt is rising, and borrowing costs are projected to keep rising gradually as the Fed tightens monetary policy.
First-quarter GDP has also been limited in recent years by so-called residual seasonality, or quirks in the data that the government is trying to address.
Other Details
- A measure of inflation, which is tied to consumer spending and strips out food and energy costs, climbed at a 1.9 percent annualized pace after a 1.3 percent increase.
- Nonresidential fixed investment -- which includes spending on equipment, structures such as office buildings and factories, and intellectual property -- increased 6.8 percent and added 0.84 percentage point to growth.
- Amid post-hurricane rebuilding efforts, government spending rose at a 3 percent pace, the most since 2015, adding 0.5 percentage-point to GDP growth; state and local outlays increased 2.6 percent, while spending by federal agencies grew 3.5 percent.
- After-tax incomes adjusted for inflation climbed at a 1.1 percent annual rate; the saving rate decreased to 2.6 percent.
- The GDP estimate is the first of three for the quarter, with revised figures scheduled for February and March when more information becomes available.