U.S. Economy Grew at Sluggish 1.3% Pace in First Quarter, Downgraded from Previous Estimate

The U.S. economy grew at a sluggish 1.3% annual pace from January through March, marking the weakest quarterly rate since the spring of 2022, according to the latest government report. The Commerce Department downgraded its previous estimate of 1.6% growth, citing slower consumer spending as a key factor.

Despite the slowdown, the economy has shown resilience in the face of rising inflation and other challenges. Consumer spending, which drives about 70% of economic growth, rose at a 2% annual rate in the first quarter, down from the previous estimate of 2.5%. Spending on goods like appliances and furniture saw a significant decline, while spending on services increased at a healthy clip.

Inflation pressures have been on the rise, with consumer prices increasing at a 3.3% annual pace in the first quarter. Core inflation, which excludes food and energy costs, rose at a 3.6% clip, up from previous quarters. The Federal Reserve has been monitoring these trends closely as it considers potential interest rate cuts to combat inflation.

Despite concerns about the economy weakening, economists remain cautiously optimistic about future growth. The Fed has delayed planned rate cuts due to persistent inflation levels above its 2% target. Wall Street traders do not expect the first rate reduction until November, according to the CME FedWatch tool.

Looking ahead, the outlook for economic growth remains uncertain. The Fed’s decision on interest rates and the impact of inflation on consumer spending will be key factors to watch in the coming months. The next government estimate of economic performance for the current quarter is set to be released on July 25, with forecasts suggesting a potential acceleration to a 3.5% annual growth rate from April through June.