Washington – The American economy grew at a 1.4% annual pace from January to March, the slowest quarterly growth since spring 2022, according to the government’s latest report on Thursday. This figure is a slight increase from the previous estimate. Consumer spending only increased at a rate of 1.5%, down from the initial estimate of 2%, indicating that high interest rates might be impacting the economy.
The Commerce Department previously estimated that the gross domestic product (GDP) expanded at a rate of 1.3% in the last quarter. This slowdown was primarily attributed to a surge in imports and a decrease in business inventories, factors that can fluctuate from quarter to quarter and may not reflect the true health of the economy.
Business investment, on the other hand, rose at a 4.4% annual pace in the last quarter, an improvement from the previous estimate of 3.2%. Higher investment in buildings, software, and intellectual property contributed to this increase.
Although the economy had grown strongly in the second half of 2023, consumer spending took a hit last quarter. This downturn in spending could be a cause for concern, as consumers drive about 70% of economic activity in the US.
Despite the slowdown in the first quarter, most economists believe that growth has rebounded in the current quarter. The Federal Reserve Bank of Atlanta predicts a robust 3% annual growth rate.
The US economy has shown resilience despite the higher interest rates implemented by the Federal Reserve to combat inflation. The economy continues to grow, with employers adding jobs and overall inflation declining. Inflation, as measured by the government’s main price gauge, has fallen to 3.3% from a peak of 9.1% in 2022.
President Joe Biden and presumptive Republican nominee Donald Trump are expected to discuss the state of the economy during their debate. Although the economy remains healthy by many indicators, rising prices, especially in rent and groceries, continue to frustrate Americans. Trump has blamed Biden for these higher prices, potentially impacting the President’s re-election bid.
Inflation pressures were evident in the first-quarter GDP report, with consumer prices rising at a 3.4% annual pace. Core inflation, excluding food and energy costs, increased by 3.7% annually.
Given the persistent inflation, the Federal Reserve is expected to cut its benchmark rate once in 2024, down from the previous forecast of three cuts. The first rate cut may come in September, with a possible second cut in December.
Despite challenges in consumption, economists believe that a weaker growth path leading to lower rates could ultimately benefit households and businesses.
Thursday’s report was the final government estimate for first-quarter GDP growth, with the next estimate for the current quarter’s economic performance set to be released on July 25.
