RACHEL MARTIN, HOST:
The U.S. economy keeps growing. The pace of growth was strong in the first three months of the year. Now a report from the Commerce Department this morning shows better-than-expected annual growth in the first quarter of 3.2%. Just a few weeks ago, forecasters were warning of a sharp slowdown in economic growth. A rebound in consumer spending helped turn things around, among other factors, which NPR's Scott Horsley is in the studio to explain.
SCOTT HORSLEY, BYLINE: Good to be with you, Rachel.
MARTIN: How big a surprise is this number?
HORSLEY: You know, forecasters had been upping their estimates of GDP in recent weeks. But this is better than they were expecting. If you look back to the middle of March, there were dire warnings that first quarter GDP could be, you know, 1% or even lower. But there have been some good trade numbers that have come in since then, a strong rebound in consumer spending last month. And even with those revisions, this is still an eye-popping number. And it's going to be celebrated at the White House. The Trump administration has been promising growth of 3%...
HORSLEY: ...Or better thanks to its tax cut and other economic policies. They basically hit the 3% target for 2018, and now they're starting off 2019 hitting that mark. Here's White House economic adviser Larry Kudlow talking to reporters earlier this week.
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LARRY KUDLOW: I know I may be at loggerheads with some of the forecasters or maybe even the consensus, but I really think this is going to turn out to be a pretty strong first half and a pretty strong year. We're staying with our 3% economic growth estimates.
HORSLEY: Now, Kudlow is at odds with a lot of forecasters outside the administration. They're dubious this rapid pace of growth can be maintained.
MARTIN: Why? I mean, why can't it be sustained?
HORSLEY: You know, independent forecasters generally expect a slowdown in economic growth to around 2% this year as the effects of the tax cut and big government spending from last year wear off. In fact, we're already seeing some of that. Federal spending was a drag on GDP in the first quarter. What's more - some of the factors behind that headline number of 3.2% are temporary, not likely to be sustained. For example, we saw a buildup in inventories during the first quarter. But, you know, as warehouses get full and stockpiles get to a certain point, they're not going to keep growing at that pace. We also saw a decline in imports in the first quarter. Imports count against our GDP. If the imports bounce back to more normal levels, that would put a damper on economic growth going forward.
MARTIN: We also mentioned that consumer spending had a role in this, right? It bounced back at the end of the quarter. But it's been pretty volatile itself, hasn't it? - that metric.
HORSLEY: Yeah. Consumers spent heavily in March, and that's a good sign. But we'd seen some shaky spending earlier in the quarter - kind of a hangover of what we saw at the end of 2018. In December, there was a sort of disappointing holiday shopping season. Consumers seemed rattled by the government shutdown, by some of the trade tensions, by the gyrations in the stock market.
Now it seems consumers are shrugging off those worries. They're opening their pocketbooks again. And, Rachel, they've got money in those pocketbooks because we still have, you know, a really strong job market. And we're seeing strong if not spectacular gains in employee wages.
MARTIN: All right. NPR's chief economics correspondent Scott Horsley reporting on the new Commerce Department stats showing a growth in the first quarter of the U.S. economy of 3.2%.
Scott, thanks. We appreciate it.
HORSLEY: You're welcome.
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