Consumption contributed to giving impetus to the largest economy in the world at the beginning of 2023, but the recent crisis in the banking sector and the rise in interest rates are likely to affect expectations.
The gross domestic product of the United States rose at an annual rate of 1.1 percent in the January-March period, after recording 2.6 percent in the fourth quarter of last year.
“Compared to the fourth quarter (of last year), the slowdown in real GDP in the first quarter (of this year) mainly reflects a decline in private inventory investment and a slowdown in non-residential fixed investment,” the Commerce Department said in a statement.
This was partly offset by accelerated consumer spending and increased exports, she added.
The ministry said in a statement that the GDP figure “reflects increases in consumer spending, exports and federal government spending” with some form of investment.
Economic activity was declining as the US central bank quickly raised its key interest rate to tackle inflation, while the full repercussions of the financial sector turmoil following the collapse of three medium-sized banks last month are yet to be seen.
The ‘risk’ of generalizing the results
Retail sales rebounded in January, likely due to mild weather, but Ian Shepherdson and Kieran Clancy of Pantheon Macroeconomics cautioned against the “risk” of generalizing first three-month results.
They added in a note that the figures for February and March “revealed a lack of momentum, something we expect to continue into the second quarter of the year.”
Shepherdson and Clancy noted that while consumers may have been willing to spend when they use savings they amassed during the COVID-19 lockdown, the rate of spending on savings has slowed.
At the same time, pressures on the banking sector may lead to a tightening of credit conditions, making it more difficult for households and businesses to obtain loans.
Ryan Sweet of Oxford Economics told AFP ahead of the latest release that the recent turmoil in the banking system and tightening of lending standards is expected to lead to a sharper-than-expected recession in the second quarter, although this will remain a moderate slowdown.
“Our business cycle indicator shows that the economy lost momentum in February and is close to negative growth,” he added.
He noted that while large US banks have relatively escaped the recent pressures, “the turmoil may not be over yet and there is significant uncertainty.”
“The economic costs are not yet fully tangible, with banks tightening lending standards and declining deposits in small banks,” he added.
2023-04-27 15:04:09
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