The American economy expanded at a slower pace in the first quarter of 2023, growing at an annual rate of 1.4 percent from January through March. This represents the slowest quarterly growth since spring 2022, according to government data released on Thursday. The latest figures represent a slight upgrade from the previous estimate. Consumer spending, a key driver of economic growth, increased by just 1.5 percent, down from an initial estimate of 2 percent. This slowdown in consumer spending suggests that high interest rates may be starting to impact the economy.
The Commerce Department had previously estimated that the gross domestic product (GDP) – the total output of goods and services in the economy – expanded at a 1.3 percent rate in the first quarter. This represents a significant slowdown compared to the robust 3.4 percent growth rate seen in the final three months of 2022.
However, the report also highlighted that the slowdown in the January-March period was primarily driven by two temporary factors: a surge in imports and a drop in business inventories. These factors can fluctuate significantly from quarter to quarter and don’t necessarily reflect the underlying health of the economy. Imports reduced the first-quarter growth rate by 0.82 percentage points, while lower inventories subtracted another 0.42 percentage points.
Most economists believe that economic growth has rebounded in the current quarter. Matthew Martin, US economist at Oxford Economics, predicts an annual growth rate of around 2 percent for April through June, fueled by continued consumer spending. A forecasting tool developed by the Federal Reserve Bank of Atlanta suggests an even stronger growth rate of 3 percent for the second quarter.
