The numbers: The U.S. economy grew at a slow 1.3% annual rate in the first three months of the year, according to updated data. This was mostly due to lower consumer spending, which could mean that the economy as a whole will slow down.
Gross domestic product, which is the economy’s official scorecard, rose by the least amount in almost two years. The government said earlier that GDP grew at a rate of 1.6% in the first quarter.
The weak GDP report was mostly caused by a bigger trade deficit and less production of goods that haven’t been sold yet.
The new report also showed that consumer spending, which is what keeps the economy going, grew at a rate of 2% instead of 2.5% as the old report said. In the last two quarters, household spending had grown at a rate of more than 3% per quarter.
But GDP might get some of its strength back in the second quarter. According to the most recent predictions, the economy may have grown by at least 3%, which is similar to the last two quarters of 2023.
A small change was made to the rate of inflation. The Fed’s preferred measure, the personal-consumption-expenditures price index, rose at a rate of 3.3%, which was a little less than the original estimate.
Important facts: In the first three months of the year, consumer spending slowed down mostly because people bought fewer new and used cars.
Car sales went down a little in the first quarter, and dealers lowered their prices to try to get buyers who were having a hard time because of high interest rates.
Because of this, spending by consumers on durable goods fell 4.1% in the first quarter, not 1.2% as was first thought.
However, spending on services, which makes up most of consumer spending, increased at a rate of 3.9% per year. That means that people are still spending money at a pretty good rate.
Gross business investment, on the other hand, rose at a steady 3.2% rate and stayed the same from the previous estimate.
Profits for businesses dropped by 0.6%, which was the first drop in four quarters. People may not be willing to keep paying higher prices, which could hurt profits.
But a measure that economists use to figure out how strong the economy really is was still somewhat positive.
Last-sale sales to private buyers in the United States grew at a 2.8% annual rate in the first quarter, down from 3.3% in the last three months of 2023. Any number above 2% is seen as pretty good.
A few things that probably won’t happen again in the second quarter also made the slowdown in GDP in the first quarter look worse than it really was.
The trade deficit grew, which took 0.9 percentage points off of GDP in the first quarter. The headline number was also lowered by 0.5 percentage points because inventory production slowed down.
In the big picture, the economy probably won’t show much confidence for the rest of the year, even if GDP rises in the second quarter.
People have had to use their savings to keep spending the same amount of money they are now. Their ability to buy things has also been hurt by persistent inflation.
Fed is likely to keep a key short-term U.S. interest rate close to a 23-year high until inflation slows down even more. Growth has been slowed by the high cost of borrowing money.
A lot of businesses are also waiting to spend or invest new money because of the upcoming presidential election.
In the future: Bill Adams, chief economist at Comerica, said, “Economic growth has slowed down from the second half of 2023.” “Because the economy is cooler, companies can’t raise prices as much. This will help inflation slow down in the second half of the year.”
The Dow Jones Industrial Average (DJIA) and the S&P 500 (SPX) both went down again on Thursday.
