The US economy slowed more than expected in the first quarter of 2023, according to a report from the Commerce Department.[0] Gross domestic product (GDP) grew at an annual rate of just 1.1% in the first three months of the year, compared with a 2.6% pace in the previous quarter, due to tepid business investment and a pullback in inventories.[1] Consumer spending, which accounts for more than two-thirds of the economy, contributed the most to the first quarter’s growth, surging over the period.[2] However, momentum slowed as the quarter progressed, raising concerns about the risk of recession.[3]
The Federal Reserve has been aggressively hiking interest rates over the past year to control inflation, raising concerns about the impact on consumer and business spending.[4] The report also revealed a 4.9% increase in the personal consumption expenditures price index, excluding food and energy prices, which is a closely watched inflation gauge for the Federal Reserve.[5] Stripping out those components, inflation-adjusted final sales to private domestic purchasers jumped at the fastest pace since the second quarter of 2021, boosted by strong consumer spending.[6]
However, the slowdown from the previous quarter resulted from a decline in business investment and residential fixed investment, which includes money spent on home buying and construction.[7] Economists predict that the second quarter will reveal a more pronounced economic slump, with a projected GDP growth rate of a sluggish 0.2%.[8]
Despite the risks of recession, consumers have remained resilient, spending robustly on goods and services, particularly in restaurants and bars.[9] A strong jobs market, with an unemployment rate at 3.5%, is also expected to underpin growth.[10] Some analysts predict that consumers will use excess savings and purchasing power to make the economic contraction short and shallow.[10]
The outlook for the economy remains uncertain and largely depends on the resiliency of the job market.[11] Still, many economists, including those at the Federal Reserve, expect the cumulative effect of monetary tightening, a retrenchment in business investment, a slowdown in consumer spending and tightening credit conditions to ultimately tip the economy into a downturn.[10]
0. “US economic growth slows sharply as interest rate hikes kick in” The Guardian, 27 Apr. 2023, https://www.theguardian.com/business/2023/apr/27/us-economic-growth-slows-sharply-interest-rate-hikes
1. “The U.S. economy is losing steam. Bank woes and other hurdles are to blame.” MPR News, 27 Apr. 2023, https://www.mprnews.org/story/2023/04/27/npr-economy-gdp-growth-recession-mcdonalds
2. “The US economy grew at a much slower pace in the first quarter” CNN, 27 Apr. 2023, https://www.cnn.com/2023/04/27/economy/q1-us-gdp-economy/index.html
3. “US in ‘Worst of Both Worlds’ With High Inflation, GDP Slowdown” Yahoo Finance, 27 Apr. 2023, https://finance.yahoo.com/news/us-worst-both-worlds-high-150424787.html
4. “Economic slowdown: Five takeaways from the new GDP report” The Hill, 27 Apr. 2023, https://thehill.com/business/economy/3975269-economic-slowdown-five-takeaways-from-the-new-gdp-report/
5. “Gold prices unable to hold $2000 an ounce as U.S. GPD grows 1.1% in Q1” Kitco NEWS, 27 Apr. 2023, https://www.kitco.com/news/2023-04-27/Gold-prices-treading-water-around-2-000-an-ounce-as-U-S-GPD-grows-1-1-in-Q1.html
6. “The GDP report’s silver linings – Economy & Business” Axios, 27 Apr. 2023, https://www.axios.com/2023/04/27/the-gdp-reports-silver-linings
7. “US economic growth slowed significantly at start of 2023” ABC News, 27 Apr. 2023, https://abcnews.go.com/Business/data-expected-show-us-economic-growth-slowed-outset/story?id=98865089
8. “US economy grew 1.1 percent in the first quarter, much slower than expected” The Hill, 27 Apr. 2023, https://thehill.com/business/economy/3973911-us-economy-grew-1-1-percent-in-the-first-quarter-slower-than-expected
9. “US economic growth slows as firms cut investment” BBC, 27 Apr. 2023, https://www.bbc.com/news/business-65414174
10. “U.S. GDP rose at a 1.1% pace in the first quarter as signs build that the economy is slowing” CNBC, 27 Apr. 2023, https://www.cnbc.com/2023/04/27/gdp-q1-2023-.html
11. “US Economic Growth Slows to 1.1% While Inflation Accelerates” Yahoo Finance, 27 Apr. 2023, https://finance.yahoo.com/news/us-economic-growth-slows-1-130855696.html