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GDP Growth Weaker in First Quarter

Gross domestic product in the U.S. increased at its slowest rate in three years during the first quarter of 2017, but surging business investment in equipment, strong employment numbers, and rising wages suggest a rebound is in the cards.

According to the U.S. Commerce Department, GDP rose at a 0.7% annual rate during Q1 – the most anemic showing since the first quarter of 2014, officials said. Declines in government defense spending and business investment in inventories combined with near stalled consumer spending to generate the paltry showing. A warmer-than-average winter that dampened outlay on utilities, along with inflation and a delay in receiving tax returns, could have hurt consumer spending, which accounts for about 70% of GDP.

Still, a number of analysts think the slowdown will be temporary, saying the reportedly sluggish GDP growth isn’t representative of what’s really going on with the economy. For one thing, challenges involved with calculating Q1 GDP can cause results to skew toward underperformance. Even more relevant, the U.S. is reaching near full employment and private sector wages are soaring – up 0.9% during the first quarter, the largest increase in 10 years, the federal government says. Furthermore, consumer and business confidence are at multi-year highs, suggesting that stronger spending could be in the cards.

In the private sector, confidence is already translating to action in some fields. While business spending on inventories declined, business spending on equipment accelerated 9.1% thanks to rising gas and oil well drilling. Spending on mining exploration, wells and shafts exploded 449%, while investment in home building shot up nearly 14%. There was also a 22.1% jump in spending on nonresidential structures. Meanwhile, exports rose at a 5.8% clip, beating out the 4.1% rate of increase in imports.