The economy expanded at a 1.6% seasonally adjusted annual rate in the first quarter of this year, a big slowdown in growth that surprised investors.
The new figures, which are adjusted for inflation, were published Thursday by the Bureau of Economic Analysis in its report for GDP. Economists had expected GDP growth to increase by 2.5%, so the reading is worse than anticipated.
Thursday’s report is the first of three estimates that will be made over the coming months as analysts get a better picture of how the economy performed during the third quarter.
The new first-quarter numbers mark a significant slowdown. GDP growth in the fourth quarter of 2023 came in at a 3.4% seasonally adjusted annual rate. Additionally, the economy expanded a healthy 2.5% for all of 2023.
Republicans will undoubtedly seize on the worse-than-anticipated GDP number to attack President Joe Biden and Democrats. Alfredo Ortiz, CEO of Job Creators Network, used the opportunity to blast the president over the GDP report.
“Slow economic growth is a direct result of bad Democratic policies that have caused stubbornly high inflation, overregulation, and a credit crunch,” he said. “Potential Democrat tax increases would grind even this slow growth to a halt. Voters who want a return to a robust economy should remember this on Election Day.”
The weaker growth in the first quarter was attributable in part to slower consumer spending. That could be a response to the Federal Reserve’s efforts to curb inflation by keeping interest rates higher for longer.
Still, the details of Thursday’s report indicated that underlying growth was stronger than the headline number suggested. Much of the slowdown reflected lower government spending, as well as a decrease in net exports — two factors that are not indicative of the health of the private sector.
Economists expected a slowdown after the Fed hiked interest rates to multiyear highs in response to the country’s too-high inflation. Higher rates typically cause economic output to dampen and can cause GDP to crater.
But the previous few quarters of robust GDP numbers have given the Fed some ammunition to keep rates higher for longer, as have strong job creation numbers.
CLICK HERE TO READ MORE FROM THE WASHINGTON EXAMINER
The Fed’s interest rate target is now at 5.25% to 5.50%, a level it has been at since July.
Just a few months ago, in December, investors were pricing in up to six downward rate revisions in 2024. Now, investors aren’t expecting a rate cut until the summer, perhaps in September, according to the CME Group’s FedWatch tool, which calculates the probability using futures contract prices for rates in the short-term market targeted by the Fed.
