U.S. economy expands better than expected in Q1 2018

The U.S. economy expanded better than expected at the beginning of this year. The advanced estimate showed that the American economy grew 2.3 percent in the March quarter. The outturn sounds quite modest, but residual seasonality was expected to put deeper downward pressure on first quarter growth, and the number exceeded expectations.

Still, residual seasonality seemed to be a factor in consumer spending, which grew just 1.1 percent in the first quarter, as anticipated. The first quarter pause in spending came following a 4 percent rise in the fourth quarter, which was stimulated by post-hurricane related re-stocking activity.

Meanwhile, business investment grew above expectations by 7.3 percent. The better than expected figure was due to a 12.3 percent rise in investment in nonresidential structures investment. While most sub-categories rose in the first quarter, investment in mining exploration, shafts and wells rose 38 percent in the quarter, as higher oil prices drove drilling activity. Investment in equipment and intellectual property were consistent with expectations.

Exports were a positive source of growth as well, rising 4.8 percent in the March quarter. Meanwhile, imports rose a more modest by 2.6 percent, signifying that net exports positively contributed 0.2 percentage points to the headline growth in March quarter. Residential investment was flat in the first quarter, as the housing sector paused following hurricane-related rebuilding boosted activity in the prior quarter. Inventory investment contributed 0.4 percentage points to the GDP growth.

Consumers are expected to be back in action in the second quarter, noted TD Economics in a research report. Smoothing out the quarter-to-quarter swings, the U.S. economy ran at a very healthy 2.9 percent rate year-on-year in the March quarter.

“We expect the fiscal stimulus that is just getting going to lift that trend to 3.0 percent by the end of the year. The Fed already knew that the economy had healthy momentum to start 2018, but Q1's better-than expected outturn probably puts some upside risk to their outlook”, stated TD Economics.

At 18:00 GMT the FxWirePro's Hourly Strength Index of US Dollar was highly bullish at 111.295. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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