The American economy expanded at an annual pace of 1.4 percent from January to March, the slowest quarterly growth since spring 2022, the US government said Thursday. Consumer spending grew only 1.5 percent, below an estimate of 2 percent, in a sign that high interest rates may be taking their toll on the economy.
The Commerce Department had previously estimated that Gross Domestic Product (GDP) —the economy’s total output of goods and services—grew 1.3 percent last quarter.
Thursday’s report showed that the slowdown from January to March was mainly caused by two factors: an increase in imports and a drop in inventories.
After growing at a solid annual pace of more than 3 percent in the second half of 2023, consumer spending slowed sharply last quarter. He Spending on appliances, furniture and other goods fell at an annual rate of 2.3 percent, while spending on travel, restaurant meals and other services rose at a rate of 3.3 percent.
Chris Zaccarelli, chief investment officer at Independent Advisor Alliance, called the slowdown in consumer spending “a cause for concern.” Consumers account for 70 percent of U.S. economic activity.
The U.S. economy, the world’s largest, has proven surprisingly resilient in the face of higher interest rates. The Federal Reserve (Fed) raised its reference rate 11 times in 2022 and 2023, to a maximum of 23 years, to try to control the worst inflation in four decades. Analysts warned that raising rates could tip the economy into a recession.
But that didn’t happen. The economy has continued to grow, albeit at a slower pace, and businesses are still hiring. In May, 272,000 jobs were created, though the unemployment rate rose for a second straight month, to a still-low 4 percent. At the same time, inflation has fallen from a high of 9.1 percent in 2022 to 3.3 percent, still above the Federal Reserve’s 2 percent target level.
The state of the economy will surely be a central topic this Thursday night when the president Joe Biden debates Donald Trumpthe virtual Republican presidential candidate.
