Economic growth slowed to 1.1% in the first quarter of this year, down from 2.6% the quarter before, the Bureau of Economic Analysis reported Thursday morning.
Economists had expected gross domestic product growth to increase by 2%, so the preliminary report is weaker than forecast. Still, details of the report indicated some resilience in the face of several major headwinds. Most notably, consumer spending accelerated to a strong 3.7% annual rate.
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“The focus is on the weak top-line number, but the economy remains resilient, especially consumer spending,” said Robert Frick, corporate economist at Navy Federal Credit Union. “Given consumer spending is about 70% of the economy, first quarter GDP shows an economy still expanding, but slowing. That inventories dropped dramatically also shows consumer strength and that businesses have underestimated both consumer buying and business buying.”
The GDP numbers, which are adjusted for inflation, represent the government’s preliminary estimate — the first of three revisions that will be made over the coming months as analysts get a better picture of how the economy performed from the start of the year through March.
The first-quarter growth came as the Federal Reserve increased its interest rate target, an action meant to slow economic activity.
Other details of the report hinted at underlying health in commerce. The headline GDP growth rate would have been more than 2 full percentage points higher if not for a sharp decrease in inventories, but inventories are not predictive of growth. Final sales to domestic private purchasers grew at a nearly 3% rate, suggesting that trend growth is higher than the headline number.
Still, even though Thursday’s preliminary reading was in the black, most economists expect GDP growth to fall off as the year drags on and economic conditions darken. Many, including Fed staff, are forecasting at least a mild recession later this year.
The first-quarter GDP numbers follow positive GDP growth in the fourth quarter of last year.
The economy grew at a 2.6% annual rate from October through the end of last year. Still, household spending and business investment slowed to end the year.
For all of 2022, the economy grew 2.1%. The year was marked first by recession fears and then by the biggest surge of inflation in decades, which prompted an intense campaign by the Federal Reserve to ease price pressures through interest rate hikes.
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The Fed once again hiked interest rates last month by a modest degree, even despite growing uncertainty in the banking sector. And investors overwhelmingly expect another quarter percentage point rate revision a week from now when Fed officials next meet.
That rate hike would come amid signs the labor market is finally softening in response to the year of monetary tightening.
