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The nation’s economy slowed during the first three months of the year, growing at a sluggish rate of 1.1 percent at a time when the nation continued to endure a period of high interest rates.
It marked the second quarter in which real GDP growth slowed, according to data released Thursday by the U.S. Bureau of Economic Analysis. The economy grew by 2.6 percent in the final three months of 2022, which was down from 3.2 percent in the third quarter.
The numbers were dragged down in part by a slowdown in spending on real estate.
The reaction from economists was mixed on the morning the data was released, with some saying the economy is reacting as expected to an era of higher interest rates while others foresaw trouble ahead.
“The economy is in a very unsettling, dicey situation,” Joseph LaVorgna, chief economist at SMBC Nikko Securities America, told the Washington Post. “All forward-looking measures are pointing to significant slowing.”
At 1.1 percent, the nation’s economic performance actually exceeded expectations from the Congressional Budget Office, which forecast real GDP to slow to a near halt early this year. The CBO projects real GDP — or gross domestic product adjusted for inflation — to grow by just 0.1 percent this year. So in that respect, the results were better than expected.
Still, the numbers don’t fully capture the turmoil caused by the collapse of Silicon Valley Bank and Signature Bank in mid-March.
Lenders reacted to the failures and wavering banking sector by tightening lending. The impact has already shown up in the commercial real estate market, where transactions of apartment buildings skidded to a halt.
“We are seeing growing cracks in the economic foundation,” Lydia Boussour, a senior economist at EY-Partheno, told The Post. “We know the economy lost momentum as the quarter progressed, which sets the stage for weaker growth.”
The first quarter numbers were buoyed in part by a rise in consumer spending. Inflation-adjusted consumer spending rose 3.7 percent in the first quarter. Spending on goods remained above pre-pandemic levels, while spending on services grew but remained slightly lower than historical levels.
That could begin to fall soon, Ben Herzon, an economist at S&P Global Market Intelligence, told The New York Times.
“Consumer spending is still moving up, but I don’t know how long that can last,” Herzon said. “Confidence is weak and has been weakening. You’ve got to wonder, will that soon translate into a pullback in spending?”
Another economist, Dana Peterson, told The Times the slowdown was a “controlled descent,” which is what the Federal Reserve has been trying to initiate by quickly raising rates in 2022.
The Federal Reserve meets again next week. Traders expect it to raise interest rates another quarter percent, according to CME Group.