The U.S. economy grew at a faster pace during the first three months of 2023 than previously estimated.
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 — grew at an annual rate of 1.3% in the first quarter of 2023, up from an initial estimate of 1.1%, the Bureau of Economic Analysis (BEA) reported last Thursday.
The “second” estimate for U.S. GDP was derived from more complete source data than the “advanced” estimate reported in April, and it mostly reflected an upward revision to private inventory investment, which includes finished goods, materials, and works in progress. Revisions are made to the GDP to account for inflation and seasonality.
“The U.S. economic expansion gathered further momentum in May, but an increasing dichotomy is evident,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.
“While service sector companies are enjoying a surge in post-pandemic demand, especially for travel and leisure, manufacturers are struggling with overfilled warehouses and a dearth of new orders as spending is diverted from goods to services,” Williamson said, according to CNN.
Although GDP received an upward revision in the first quarter of 2023, the U.S. economy has been unable to break out of its long-term downtrend, with data from the BEA showing three consecutive quarters of decelerating growth.
“Compared to the fourth quarter, the deceleration in real GDP in the first quarter primarily reflected a downturn in private inventory investment and a slowdown in nonresidential fixed investment,” the BEA said in Thursday’s report. “These movements were partly offset by an acceleration in consumer spending, an upturn in exports, and a smaller decrease in residential fixed investment. Imports turned up.”
Even though the U.S. economy has segments showing signs of slowing, the job market continues to show resilience. The U.S. labor market added 253,000 jobs in April and saw no change to the 3.4% unemployment rate, the U.S. Bureau of Labor Statistics reported last month.
“It looks like consumers are still in good shape, and we attribute that to low debt levels, strong balance sheets in terms of high levels of savings, so we expect spending to stay positive in the second quarter,” said Luke Tilley, chief economist at Wilmington Trust, in an interview with CNN. “I think that we’ll continue to see a strong economy, and that’s best gauged by the labor market.”
Still, recent banking turmoil and Fed expectations that more interest rate increases will be necessary to get inflation back down to its 2% target suggest that more work will be required before the goal is met.
In April, Federal Reserve members approved their tenth interest rate hike in a little over a year. This lifted the Effective Federal Funds Rate from around zero to its current range between 5% and 5.25%, according to data from the Federal Reserve Bank of New York.
BEA is scheduled to release its third estimate for first-quarter GDP on June 29.