2018.04.2923:57:00UTC+00U.S. Economy Slows in the First Quarter

The U.S. economy slowed in the first quarter as consumer spending expanded at its slowest pace in almost five years, but a jump in wages amid tightening labor market conditions and lower tax rates implies that the setback is likely temporary.

Gross domestic product expanded at a 2.3 percent annual rate, the Commerce Department said in its snapshot of first-quarter GDP, also restrained by a moderation in business spending on equipment and investment in homebuilding.

These factors were partially counterbalanced by a rise in inventories and a narrowing of the trade deficit. The economy expanded at a 2.9 percent rate in the fourth quarter. Domestic demand rose at a 1.7 percent rate, the slowest in two years, after rising at a quick 4.8 percent pace in the final three months of 2017.

Economists anticipate growth to 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. The tax cuts came into effect in January.

Lower corporate and individual tax rates as well as increased government spending will likely lift annual economic growth close to the administration's 3 percent target.

Federal Reserve officials are likely to shrug off the first-quarter performance. The U.S. central bank raised interest rates last month in a nod to the strong labor market and economy, and forecast at least two more rate hikes this year.

The GDP report showed the Fed's preferred inflation gauge, the personal consumption expenditures (PCE) price index excluding food and energy, increased at a 2.5 percent rate - the fastest pace since the fourth quarter of 2007. The core PCE price index rose at a 1.9 percent pace in the fourth quarter.

The U.S. central bank has a 2 percent inflation target.