The U.S. economy grew at a decelerated pace during the first three months of 2023, marking the third consecutive quarter of declining Gross Domestic Product.
Gross Domestic Product (GDP) — a measure of economic activity determined by the market value of all final goods and services produced in the United States — increased at an annual rate of 1.1% in the first quarter of 2023, down from 2.6% in the prior quarter, according to advanced estimates released by the Bureau of Economic Analysis (BEA) on Thursday.
The modest first-quarter increase in GDP came in below the analyst consensus of 2% and reflected increases in consumer spending, federal government spending, state and local spending, exports, and nonresidential fixed investment, BEA said in the report.
Increases during the quarter were partially offset by a downturn in private inventory investment and a slowdown in residential fixed investment, the data shows.
Even with slowing economic growth in the first quarter, the U.S. remains strong, according to Robert Frick, a corporate economist at Navy Federal Credit Union.
“The focus is on the weak top-line number, but the economy remains resilient – especially consumer spending,” said Frick, the Washington Examiner reported.
“Given consumer spending is about 70% of the economy, first quarter GDP shows an economy still expanding, but slowing,” he said. “That inventories dropped dramatically also shows consumer strength and that businesses have underestimated both consumer buying and business buying.”
Weaker growth in the first quarter of 2023 follows the Federal Reserve’s most aggressive rate cycle in 40 years, as it raised to quell inflation and slow the economy.
In March, Federal Reserve members approved another 25 basis points increase, their ninth rate hike in a 12-month period. During this period, the Fed’s effective federal funds rate rose from near-zero to a range between 4.75% and 5%, according to data from the Federal Reserve Bank of New York.
The Fed is projected to approve one more 0.25% increase in May before pausing rate hikes for the remainder of 2023. However, Fed members have said they need to see solid evidence of disinflation and they would monitor the data as it comes in to determine future steps to lower inflation.
Even with positive growth in the first quarter, the economy is still in hot water, according to Joseph LaVorgna, chief economist at SMBC Nikko Securities America.
“The economy is in a very unsettling and dicey situation with all forward-looking measures pointing toward significant slowing, said LaVorgna, The Washington Post reported.
This cautious sentiment is shared by former Obama Economic Adviser Claudia Sahm, who points out what a roller coaster ride 2023 has been thus far.
“We went from ‘Things are looking good’ at the beginning of 2023, to ‘Banks are collapsing, the bottom is falling out.’ And now we’re back to trying to figure out what’s going to happen,” Sahm said, per the Washington Post. “Where are we now? We don’t know,” she said.