The Slowdown Begins: A Closer Look at the US Economic Growth in Q1 2023 and Its Implications for Businesses and Consumers.

 

As the U.S. economy grew at a slower pace than expected in the first quarter of 2023, fears of a recession are increasing, and the Federal Reserve is considering more interest rate increases. According to the Bureau of Economic Analysis' advance estimate of first quarter U.S. gross domestic product (GDP), the economy grew at an annualized pace of 1.1%, which is slower than consensus forecasts. Economists had predicted the U.S. economy to grow at an annualized pace of 1.9% during the first three months of 2023.

The report indicates that the U.S. economy is slowing down, and this is in line with other recent economic data and weakening consumer confidence about the economy. The slowdown in GDP is attributed to a slowdown in single-family construction, wholesale trade, and manufacturing. However, the growth in consumer spending in goods and services helped keep annualized growth positive for the quarter.

The report also revealed a 4.9% increase in the personal consumption expenditures price index, excluding food and energy prices. This index, known as Core PCE, is a closely watched inflation gauge for the Federal Reserve. Economists surveyed by Bloomberg had expected a 4.7% increase.

Morning Consult Chief Economist John Leer noted that "Without a robust consumer, we’re likely to see more volatility and uncertainty in economic activity through the end of the year." Moreover, Oxford Economics lead US economist Michael Pearce had noted prior to the report that most of the growth would come in the early part of the first quarter.

Oxford Economics sees marginal GDP growth in the second quarter followed by a recession in the back half of 2023. The research team notes that the high water mark for economic growth was likely the first quarter of 2023, and growth risks are tilted decidedly to the downside as the drivers that buoyed activity at the start of 2023 lose steam.

Overall, this report highlights that the U.S. economy is facing some significant headwinds. Businesses and consumers alike will need to be cautious moving forward as uncertainty and volatility are expected to persist through the end of the year. As a result, the Federal Reserve may need to continue to consider more interest rate increases to mitigate the risk of a recession.