US economy slowdown confirmed in first quarter What did Biden say?

The slowdown in the US economy was confirmed in the first quarter, with gross domestic product (GDP) growth well below expectations, the first tangible sign of the effects of the Federal Reserve (Fed) rate hike that began a year ago to fight inflation.

For the first three months of 2023, GDP growth stood at an annual projection of 1.1%, according to an initial estimate released Thursday by the Commerce Department.

This represents a sharp slowdown from the 2.6% recorded in the previous quarter, but the figure is also well below analysts’ expectations of 2% growth in the quarter, according to the Briefing.com consensus.

“GDP growth reflects an increase in consumer spending, public spending and exports that offset the decline in private and real estate investment”, the department detailed in its press release, which also underlines that growth is suffering the effect of an increase in imports.

The trade deficit widened in the first two months of the year due to an increase in imports, particularly raw materials and pharmaceutical products. Data for March will be released at the end of next week.

Furthermore, although household consumption held steady during the first three months of the year, it slowed down over the months, even falling by 1% in March, while consumer confidence also declined.

Although inflation has slowed to the point of reaching 5% per year in March, its lowest level in almost two years, it is still too high and weighs on purchasing power.

Generalized inflation risk

Households must also contend with rising borrowing costs, which have grown steadily over the year, keeping pace with the Fed’s rate hikes.

These interest rates are now between 4.75 and 5%, the highest since 2007, and should continue to rise until inflation returns to 2%, the target set by the US central bank.

“Our data leads us to believe that monetary tightening and recent tensions in the banking system will lead to a mild recession, albeit stronger than previously anticipated.”, stressed the chief economist of Oxford Economics, Ryan Sweet, interviewed by AFP.

Most analysts foresee a more difficult end to the year for the United States, with growth that should be weak, even negative, in the coming quarters, particularly due to the tightening of financing conditions.

The Fed will meet next week to decide whether or not to raise its rates again, while the market expects a moderate rise of around 0.25 percentage points.

The release on Friday of the PCE inflation index, which is the one the Fed tracks, should give an indication of the direction the central bank will take.

The Fed’s fear is to see an inflation risk materialize.”widespread in the economy”, alerted one of its governors, Lisa Cook, on April 21, when she stressed that although the different measures of inflation “regress from their maximums, they continue to be high, which suggests that inflation has become general in the economy”.

“The big question is whether and how fast inflation will continue on its downward path towards our 2% target.”, he added.

Biden: economy moving towards stable growth

The president of the United States, Joe Biden, stressed that the country’s GDP data released this Thursday show that the country’s economy is in a transition towards growth “firm and stable”, despite the fact that this has slowed down.

“We learned today that the US economy remains strong, as it transitions toward strong, stable growth.”, indicated the president.

Biden noted that consumer spending and disposable income have increased, despite the fact that growth has moderated.

He puffed up his economic policies, which he assured are boosting job creation.

The United States economy grew 0.3% in the first quarter of 2023 compared to the last three months of 2022, according to the calculation of the Gross Domestic Product published this Thursday by the Government’s Bureau of Economic Analysis (BEA).

The data shows the slowdown in growth in the world’s leading economy, since the quarterly increase in GDP had been three tenths higher -0.6%- in the last quarter of 2022.

The statistics also calculate that the annual growth rate in these first three months of the year was 1.1%, well below the 2.6% estimated in the last quarter of 2022.

After today’s data, the United States economy shows signs of cooling after the last rise in interest rates by the Federal Reserve (Fed), which was in March and 0.25 points -the ninth in a year-, to moderate inflation, despite the turmoil in the banking system.

With information from AFP and EFE