The U.S. economy grew at a slow annual rate of 1.3% from January to March, the weakest quarterly rate since spring 2022, the government announced Thursday, in a downward revision from its previous estimate.
Consumer spending has increased, but at a slower pace than previously thought, a sign that high interest rates and inflation are putting pressure on household budgets.
The Commerce Department previously estimated that the country’s gross domestic product – the total production of goods and services – grew at a rate of 1.6% in the latest quarter.
GDP growth in the first quarter thus marked a clear slowdown compared to the vigorous rate of 3.4% recorded during the last three months of 2023.
But last quarter’s decline was mainly due to two factors — a surge in imports and a reduction in business inventories — which tend to fluctuate from quarter to quarter. Thursday’s report showed that imports subtracted more than a percentage point from last quarter’s growth. The reduction in business inventories took away almost half a percentage point.
In contrast, consumer spending, which fuels about 70% of economic growth, grew at an annual rate of 2%, down from the 2.5% level in the first estimate and rates of more than 3%. % of the previous two quarters. Spending on goods such as appliances and furniture fell at an annual rate of 1.9%, the largest such quarterly decline since 2021.
Nonetheless, spending on services grew at a healthy pace of 3.9%, the highest level since mid-2021. And an uptick in business investment, led by housing, software and research and development, added more than a percentage point to first-quarter annual growth.
A measure of inflation in the January-March GDP report was revised slightly downward from the government’s initial estimate. But price pressures increased further in the first quarter. Consumer prices rose at an annual rate of 3.3%, compared to 1.8% in the fourth quarter of 2023. Excluding volatile food and energy costs, so-called core inflation was of 3.6%, compared to 2% during each of the two previous quarters.
Faced with rates, the economy bends but does not give in
The U.S. economy has shown surprising resilience since the Federal Reserve (Fed) began raising interest rates more than two years ago in an effort to stem the worst surge in inflation in four years. decades.
The resulting much higher borrowing costs were expected to trigger a recession. But the economy continued to grow and employers continued to hire.
However, rising rates appear to be weighing on the economy.
“The impact of the Fed’s tightening interest rate policy is clearly visible in the first quarter GDP report,” said Bill Adams, chief economist at Comerica, noting in particular a sharp drop in purchases of long-lasting manufactured goods.
Most Wall Street brokers don’t expect a first rate cut until November, according to the CME FedWatch tool. Rate cuts have been pushed back as inflation remains stuck above the Fed’s 2% target level, after falling steadily in late 2022 and through most of 2023.