"Nevertheless, given that the economy has repeatedly swooned in the first quarter in recent years, the Fed won't be too concerned".
The year is off to a sluggish start for the USA economy - and a decline in spending on clothing and footwear is partly to blame.
On the global front, net exports swung back to be a positive contributor in the first quarter, adding 0.20 percentage points, after subtracting 1.16 percentage points from GDP in the fourth quarter.
Analysts expect the first-quarter growth pace to be a bit of an anomaly and not a true reflection of the economy. In the fourth quarter, current-dollar GDP rose 5.3 percent.
The slight pullback in the pace of business investment from the fourth quarter could have been due to the strong incentives businesses had to invest in the fourth quarter of past year before the corporate tax rate declined from 35% to 21%.
Economists expect growth will accelerate in the second quarter as households start to feel the impact of the Trump administration's $1.5 trillion income tax package on their paychecks.More news: Coli linked to romaine lettuce confirmed in Washington
More news: Royal Wedding: Prince Harry Chooses Duke of Cambridge As Best Man
More news: Oil Prices Dip On Crude, Gasoline Build
The tax cuts, focused on corporations and the wealthy, kicked in on January 1, and employers adjusted worker paychecks to reflect the lower tax rates in February.
The Trump administration has promised 3 percent GDP growth or better, due in large part to the tax cuts that were passed late previous year. The economy may expand 2.8 percent in 2018, according to the median of forecasts compiled by Bloomberg, before slowing in the following two years.
Government spending slowed to a 1.2% gain from 3%, as both federal and state and local outlays cooled. Delayed tax refunds may have held down consumer spending, which is likely to rebound in the second quarter as incomes rise, he said.
"The biggest question is what's going to happen in the second quarter", said Jacob Oubina, senior USA economist at RBC Capital Markets.
Still, growth outpaced economists' expectations of around 2 percent. In five of the past eight years, the first quarter turned out to be the worst one of the year. The PCE price index increased 2.7 percent, the same increase as in the fourth quarter. Investment in new structures almost doubled to 12.3 percent. Indeed, durable goods spending fell by an annualized 3.3 percent in the first quarter, with nondurable goods demand up just 0.1 percent. This was driven in part by a slowdown in discretionary categories like shoes, apparel and cars, as well as food and beverages.
The housing sector stagnated in early 2018 as residential investment was flat, a development that likely reflected higher short-term interest rates and tax-code changes that diminished decades-old perks that encouraged homeownership. Nonresidential fixed investment contributed 0.76 percentage points to top-line growth, with positive spending on inventories adding another 0.43 percentage points.
Trade added 0.20 percentage point to GDP growth as weak a USA dollar and strengthening global economy bolstered exports.