GDP revised up to 2% growth rate in first quarter

UNIVERSAL BASIC INCOME PAYMENTS: HOW EXPERIMENTS SENDING PEOPLE MONEY HAVE WORKED OUT

Still, first-quarter GDP growth was lower than the preceding quarter’s 2.6% clip, showing a slowdown attributable in part to the Federal Reserve’s campaign to tighten monetary policy and drive down inflation.

After more than a year of successive rate hikes, some by very aggressive margins, this month, the Fed opted to hold rates steady at 5% to 5.25%, a pause that the Fed itself has indicated might be merely temporary.

“While the economy has outperformed expectations, our base case is that the lagged and cumulative effects of restrictive policy will slow the pace of activity going forward, to a below-potential pace,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics.

The report shows that consumer spending, as measured by personal consumption expenditures, grew at a 4.2% rate — the highest pace since 2021. That shows economic activity is still buzzing despite the Fed’s attempts to tighten.

Declining GDP is the biggest indicator of an economic downturn or recession. Typically, two back-to-back quarters of negative GDP growth are indicative of a recession. So, the fact that the GDP was positive in the first quarter is welcome news to economists, many of whom were predicting just months ago the country might be in a recession by now.

But gross domestic income, which is an alternative measure of economic growth (that theoretically should be in sync with GDP), actually decreased by 1.8% in the first quarter. Gross domestic output, which is the average of GDP and GDI, was up 0.1% in the first quarter after posting a slightly bigger loss in the fourth quarter.

And while the broader labor market hasn’t experienced the degree of pain from the tightening as many economists might have expected, other parts of the economy, such as the housing market, are arguably recessed. Mortgage rates have soared, causing homes to become more unaffordable. Sales are down by a wide margin from 2020, when rates were at historically low levels.

The economy has faced some upheaval this year as the Fed has hiked rates, adding to a list of factors that could determine whether the U.S. faces a recession.

The banking system is still feeling the aftershocks of the sudden failure of Silicon Valley Bank, which led to the subsequent collapse of Signature Bank and, more recently, First Republic Bank. The failures have caused investors to dial back expectations for just how high rates will rise this year.

But despite the historic rate hikes, many elements of the economy have remained surprisingly resilient, the most notable of which is the country’s red-hot labor market.

While there have been some cracks showing — seasonally adjusted initial jobless claims have been gradually trending up, for instance — other indicators show that work is still plentiful.

For example, the economy crushed expectations in May and added 339,000 jobs while the unemployment rate crept up slightly to a still-low 3.7%. Job openings also unexpectedly increased in April, rising to above 10 million for the first time since January, showing that employers are still looking for workers to hire.

The bright spots in the economy have been a political boon to President Joe Biden. Despite families and businesses across the country still feeling the sting of high inflation, the Biden administration has touted the labor market and has even rolled out the use of the term “Bidenomics” over the past week or so to highlight the economy.

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The GOP has also highlighted surveys that show the public doesn’t view the economy as favorably as Democrats would portray it.

Half of voters consider the current state of the U.S. economy to be “poor,” according to polling conducted by data analytics company Premise. A mere 12% say that the economy is in “good” or “excellent” shape right now.