The initial reading of US Q1 growth, which is always presented on an annualised basis, came in at 0.7%. This marked a very strong slowdown over the previous reading of 2.1% seen in Q4 2016 and was seen as making a further interest rate hike by the Fed less likely in June. The estimates of quarterly activity are subject to revisions as fuller data becomes available. This has led to a re-evaluation of the Q1 number to 1.2% which is still well down on the final Q4 reading. The stronger figure was due to greater than anticipated consumer and business spending in the quarter.
The revised consumer spending figure of 0.6% was twice the original estimate, but it still represents the weakest growth seen in consumer spending of any quarter since 2009.
The Federal Reserve had not anticipated that Q1 growth would dip as much as it did (even after the revision) and is clearly intending to take a cautious approach which probably means that the next rate hike will be deferred until it becomes clear whether Q1 was a blip or the start of a period of slower economic growth in the US. It has been suggested that Q1 data is always relatively weak due to the winter months which can stifle consumer spending and see lay-offs of casual workers in outdoor industries such as construction. However, the start of 2017 was marked by a relatively mild winter which was blamed for cutting consumer expenditure on heating and warm weather clothes!
Corporate profits were down by $40.3 billion, compared to a Q4 rise of $11.2 billion, which was attributed to fines applied to companies including VW, and the US arms of Deutsche Bank and Credit Suisse, at least in part.