The US economy slowed in the first quarter as consumer spending grew at its weakest pace in nearly five years.

But the setback is likely temporary against the backdrop of a tightening labour market and large fiscal stimulus. 

The US economy increased at a 2.3% annual rate, the Commerce Department said in its snapshot of first-quarter GDP, also held back by a moderation in business spending on equipment and investment in home building. 

Today's figures showed that the US economy grew at a 2.9% pace in the fourth quarter. Economists polled by Reuters had forecast output rising at a 2% rate in the January-March period. 

The first-quarter growth pace is, however, probably not a true reflection of the economy, despite the weakness in consumer spending. First-quarter GDP tends to be sluggish because of a seasonal quirk. 

The US labour market is near full employment and both business and consumer confidence are strong. 

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. 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 to the administration's 3% target, despite the weak start to the year. 

Federal Reserve officials are likely to shrug off tepid first-quarter growth. The Fed raised interest rates last month in a nod to the strong labour market and economy, and forecast at least two rate hikes this year.

Minutes of the March 20-21 meeting published earlier this month showed policymakers "expected that the first-quarter softness would be transitory," citing "residual seasonality in the data, and more generally to strong economic fundamentals." 

Growth in consumer spending, which accounts for more than two-thirds of US economic activity, braked to a 1.1% rate in the first quarter. 

That was the slowest pace since the second quarter of 2013 and followed the fourth quarter's robust 4% growth rate. 

US consumer spending in the last quarter was undercut by a decline in purchases of cars, clothing and footwear as well as a slowdown in food and beverages outlays. This likely reflected delayed tax refunds. 

According to surveys, the tax cuts did not reflect on many workers' paychecks until late in the first quarter. Income at the disposal of households increased at a 3.4% rate in the first quarter, accelerating from the fourth quarter's 1.1% pace. Households also boosted savings during the quarter.
           
Business spending on equipment slowed to a 4.7% rate in the three month period after double-digit growth in the second half of 2017. The cooling in equipment investment partly reflects a fading boost from a recovery in commodity prices. 

Economists expect a marginal impact on business spending on equipment from rising interest rates and more expensive raw materials. 

Investment in homebuilding was unchanged in the first three months of the year, reflecting a decline in brokers' commissions as an acute shortage of properties hurt home sales. 

Residential construction increased at a 12.8% rate in the October-December period.