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The U.S. economy expanded at the slowest pace in three years as weak auto sales and lower home-heating bills dragged down consumer spending, offsetting a pickup in investment led by housing and oil drilling.

Gross domestic product, the value of all goods and services produced, rose at a 0.7% annualized rate after advancing 2.1% in the prior quarter, Commerce Department data showed April 28 in Washington. The median forecast of economists surveyed by Bloomberg called for a 1% gain. Consumer spending, the biggest part of the economy, rose 0.3%, the worst performance since 2009.

The GDP slowdown owes partly to transitory forces such as warm weather and volatility in inventories, which supports forecasts for a rebound as high confidence among companies and consumers and a solid job market underpin growth. Even so, the weakness at car dealers could weigh on expansion, and further gains in business investment could depend on the extent of policy support such as tax cuts.

“There’s reason to think that some of the things that were weak in the first quarter should reverse in the second quarter, in particular consumption and inventories,” Michael Feroli, chief U.S. economist at JPMorgan Chase & Co., said before the report. “Labor income is starting to pick up and actually keeping consumer spending pretty well supported.”

The data are unlikely to dissuade Federal Reserve policy makers from raising interest rates in the coming months. Economists were largely expecting a weak growth figure, calling it a blip and not a sign of stagnation.

Analysts have pointed to issues with the Commerce Department’s seasonal adjustment of growth data: Since 2000, expansion in the first quarter of each year has averaged 1%, compared with 2.2% for the rest of each year, according to Wells Fargo Securities.

Trump’s Target

Though the first-quarter figure isn’t a verdict on President Donald Trump’s policies, economists are generally skeptical that growth will reach his goal of 3% to 4% on a sustained basis. Analysts’ estimates indicate just 2.2% to 2.3% annual growth through 2019, a tad above the average pace during the almost eight-year expansion.

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By Shobhana Chandra
Bloomberg News

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