The Commerce Department issued the latest GDP data Thursday morning, revealing that U.S. economic growth slowed in the first quarter of 2023, expanding at an annualized rate of 1.1 percent, far lower than the two percent projected by forecasters.
This is also a significant decrease from the fourth quarter of 2022. According to CNBC:
“Gross domestic product, which is a measure of all services and goods produced during the time period, increased at an annualized rate of 1.1% in the first quarter, according to the Commerce Dept. on Thursday.” Dow Jones polled economists, who predicted 2% increase.”
“The rate of growth followed a fourth-quarter GDP increase of 2.6%, part of a year-to-year increase of 2.1%.”
According to the research, two causes explain the slowdown:
“The decrease in growth was caused by a decline in private inventory investment as well as a slowdown in nonresidential fixed investment,” according to the study. The inventory delay reduced the headline figure by 2.26 percentage points.”
The slowdown suggests that the Federal Reserve’s policy is working, albeit how successfully is unknown. Inflation remains strong, with the PCE Price Index increasing by 4.2 percent over the projected 3.7 percent.
“The slowing economy reflects the impact of the Federal Reserve’s relentless drive to contain inflation, with nine hikes in interest rates in the last year.” The increase in financing costs is likely to cause the country to enter a recession later this year. Though inflation has progressively declined from the four-decade peak hit last year, it remains much above the Federal Reserve’s 2% objective.”
While the Fed is concentrating on decreasing inflation, there are fears that we could suffer “stagflation,” the feared mix of high inflation and poor growth seen in the late 1970s and early 1980s. Nonetheless, Wall Street does not appear to be badly affected by the revelation.
The question of whether the United States is on the verge of a recession remains unanswered.
“The U.S. economy appears to be at an inflection point, since consumer spending has begun to decline in recent months,” noted Jeffrey Roach, the head of economics at LPL Financial. “The backward aspect of the GDP data could be misleading for markets because we know consumers continued to spend in January but have been scaling back since March as consumers become more concerned about the future.”
Author: Blake Ambrose
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