Reference news network reported on April 29
The U.S. economy slowed sharply from January to March, with annualized growth falling to 1.1 percent, as interest rate hikes hammered the housing market and businesses reduced inventories, the Associated Press reported on April 27.
The estimate given by the Commerce Department on the 27th showed that the growth rate of the US gross domestic product (GDP) slowed down after a 3.2% increase from July to September last year and a 2.6% increase from October to December last year.
But consumer spending, which accounts for about 70 percent of U.S. economic activity, remains resilient, growing at an annualized 3.7 percent, the fastest pace in nearly two years. In particular, consumer spending is solid: it grew at its fastest pace since the second quarter of 2021.
Economists had been expecting GDP growth of 1.9% in the first quarter of this year. Much of the slowdown in the quarter was due to a sharp reduction in business inventories, which shaved about 2.3 percentage points off overall growth. Businesses typically reduce inventories in anticipation of a future economic downturn.
The slowdown reflects the impact of the Federal Reserve’s aggressive actions to tame inflation. In the past year, the Fed has raised interest rates nine times. A sharp increase in borrowing costs is expected to tip the economy into recession sometime this year. While inflation has fallen steadily from a 40-year high reached last year, it remains well above the Fed’s 2 percent target.
The housing market, which is particularly vulnerable to rising lending rates, has been hit hard. Since the collapse of the two largest U.S. banks last month, many banks have tightened their lending standards, making it harder to borrow money to buy a home, car or expand their business.
Andrew Hunter of Capital Economics wrote in a research note: “The U.S. economy started the year with weaker momentum than previously thought. We still expect the drag from rising interest rates and tighter credit to keep the The economy quickly slipped into a mild recession.”
Many economists say the market has yet to fully feel the cumulative impact of the Fed’s several rate hikes. Still, policymakers at the central bank are eyeing a so-called soft landing: slowing growth enough to keep inflation in check but not enough to tip the world‘s largest economy into recession.
There is widespread disbelief that the Fed can succeed. One economic model, used by the Conference Board, a business research group, puts the chances of a U.S. recession in the next year at 99%.
The GDP data released on the 27th was the first of three estimates from the Commerce Department for economic growth in the first quarter. Economists expect the economic growth rate to slow further in the second quarter, with an annualized growth rate of just 0.3%, according to the latest survey by Huishi Company.
A key question is whether and by how much consumer spending will slow. Retail sales got off to a good start in January, thanks to better-than-expected weather and an increase in Social Security checks. But in February and March, retail sales plummeted, suggesting consumers were feeling tired.
Even so, some economists have been impressed that consumer spending has held up after nine rate hikes by the Federal Reserve led to higher borrowing costs for things like mortgages, car loans, credit cards and business borrowing.
“The focus is on weak GDP numbers, but the economy is still resilient. Businesses are underestimating consumer spending and business spending,” said Robert Frick, an economist at Navy Federal Credit Union.
According to a report on the website of The Wall Street Journal on April 28, the US economy grew by an annualized rate of 1.1% in the first quarter of this year, which was lower than the 1.9% growth expected by Wall Street analysts. Strong consumer spending was offset by a drop in business investment.
Wall Street analysts had expected gross domestic product (GDP) to grow by about 2%. GDP is the official measure of the economy.
Consumer spending, the main engine of U.S. economic growth, drove the economy in the first quarter. Consumer spending jumped 3.7%.
Households, however, have received little help from businesses and probably won’t expect much in the near term. Companies cut spending and reduced production, dragging down overall GDP by 2.3 percentage points.Return to Sohu to see more
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