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US economic growth in the last quarter was revised slightly to an annual rate of 1.4%
WASHINGTON (AP) — The U.S. economy expanded at an annual pace of 1.4% from January to March, the slowest quarterly growth since the spring of 2022, the government said Thursday in a slight update to its previous estimate. Consumer spending grew at a rate of just 1.5%, below the initial estimate of 2%, in a sign that high interest rates may be hurting the economy.
The Commerce Department previously estimated that gross domestic product — the economy’s total output of goods and services — advanced at a rate of 1.3% last quarter.
First-quarter GDP growth marked a sharp pullback from the strong 3.4% pace during the last three months of 2023. Still, Thursday’s report showed that the slowdown from January to March was mainly caused by two factors — an increase in imports and a decline in business inventories — that can vary from quarter to quarter and do not necessarily reflect the underlying health of the economy.
Imports shaved 0.82 percentage point off first-quarter growth. Lower inventories subtracted 0.42 percentage point.
Making up for the slack was business investment, which, according to the government, increased at an annual rate of 4.4% in the last quarter, above the previous estimate of 3.2%. Increased investment in factories and other non-residential buildings and in software and other types of intellectual property helped drive the increase.
After growing at a solid annual pace of more than 3% in the second half of 2023, consumer spending slowed sharply in the last quarter. Spending on appliances, furniture and other goods fell at an annual rate of 2.3%, while spending on travel, restaurant meals and other services increased at a rate of 3.3%.
Chris Zaccarelli, chief investment officer at Independent Advisor Alliance, called the drop in consumer spending “a cause for concern.” Consumers account for about 70% of U.S. economic activity.
“The economy remained resilient in the first quarter,” said Gregory Daco, chief economist at tax and consulting firm EY. But “demand growth in the private sector was cooling, led by greater consumer prudence. with business investment maintaining moderate momentum.”
Many economists had expected growth to strengthen in the current April-June quarter. But a forecasting model from Oxford Economics — based on economic statistics that have been reported so far — points instead to a tepid 1.3% growth rate this quarter.
The US economy, the largest in the world, has proven surprisingly resilient in the face of higher interest rates. The Federal Reserve increased its referral rate 11 times in 2022 and 2023 to a 23-year high to try to tame the worst bout of inflation in four decades. Most economists predicted that the sharply higher consumer lending rates that resulted from the Fed’s rate hikes would tip the economy into a recession.
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That didn’t happen. The economy kept growing, albeit at a slower pace, and employers kept hiring. In May, the nation added a robust 272,000 jobs, though the unemployment rate rose for a second straight month, to a still-low 4%. At the same time, overall inflation, as measured by the government’s main price index, fell from a peak of 9.1% in 2022. to 3.3%still above the Fed’s 2% target level.
The state of the economy is certain to be a central topic on Thursday night when President Joe Biden debates Donald Trump, the presumptive Republican presidential nominee. While the economy remains healthy by most measures and inflation is well below its peak, many Americans say they are frustrated that overall prices are still well above pre-pandemic levels. Higher rents and groceries are particular sources of discontent, and Trump has sought to shift the blame to Biden in a threat to the president’s reelection bid.
A measure of inflation in the January-March GDP report showed that price pressures accelerated in early 2024. Consumer prices rose at an annual pace of 3.4%, up from 1.8% in the fourth quarter of 2023. Excluding volatile food and energy costs, so-called core inflation rose at an annual pace of 3.7%, up from 2% in each of the previous two quarters.
In light of still-high inflationary pressures, Fed policymakers earlier this month collectively predicted they would cut their benchmark rate just once in 2024, down from their previous forecast of three rate cuts. Most economists expect the first rate cut to come in September, with possibly a second cut in December.
Thursday’s report was the government’s third and final estimate of first-quarter GDP growth. The Commerce Department will release its first estimate of the current-quarter economic performance on July 25.