The US economy is still strong, but growth is slowing down as shown by the latest GDP reading. Real GDP increased at an annual rate of 1.6% in Q1 after growing by 3.4% in Q4 of 2022 according to the Bureau of Economic Analysis’ advance estimate released today (Thursday). Analysts expected slower growth this quarter with projections for a deceleration from last month’s figure, but they still underestimated how much it would fall by as GDP dropped faster than anticipated.
The slowdown in real GDP was mainly due to decreased consumer spending, exports and state and local government expenditure alongside reduced federal government investment during the first quarter of 2023 compared with Q4 of last year (CBC reports). The slower growth trend did receive a small boost from increased residential fixed investments.
Robert Frick, Navy Federal Credit Union’s corporate economist commented that “we knew the economy was weaning itself off government support… but this shouldn’t be taken as an indicator of any fundamental downshift in our overall economic health.” Although consumer spending remains strong, with GDP dropping so rapidly, many people are finding it harder to make ends meet.
Despite slower growth, core inflation has risen consistently during Q1 at 3.7% compared with a 2% figure in Q4 last year as calculated through the Bureau’s favored Price Consumer Expenditures (PCE) price index which excludes food and energy prices – this is an important metric that’s closely monitored by The Federal Reserve to gauge inflation rates.
According to CoreLogic Chief Economist Selma Hepp, it seems likely that “inflation will resume its downward trend slowly inching towards the Fed’s 2% target” although as she cautioned “the fed is still committed to bringing prices under control,” this does not seem very encouraging for people facing difficulties because of higher interest rates and borrowing costs.
Since July, The Federal Reserve has kept policy rates between 5.25% – 5.5%. Following its March meeting the Chair Jerome Powell confirmed that cutting interests is still a possibility during this year; however, Fed projections have been revised to just three cuts in total for 2023 with Mr Powell warning that lowering rates too soon could see inflation spike again while holding back too long poses risks to economic growth.
Higher interest and borrowing costs have also negatively affected larger ticket items like housing and cars according a recent survey conducted by Santander – nevertheless, 67% of those participating in the study said they had cut out significant purchases such as vacations, vehicles or home repairs due to high prices brought about by inflation.
Although many Americans are concerned with an economic recession, this has taken second place for some people who have become more accepting that higher interest rates and costs will be a new normal going forward – the number of participants predicting recessions during Q2 of 2013 reduced to around two-thirds from three quarters in previous surveys.
According to Santander CEO Tim Wennes, “middle income households have had to navigate higher prices due to inflation but it is encouraging that consumers are taking positive steps and adjusting their household budgets.” With so much economic volatility around, personal finance tools can prove quite valuable – this site may enable potential users such as students and freelancers take a better view of interest rates offered on credit cards or student loans in the USA.
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