US economic growth slows in first quarter to 2 years low; inflation surges | World News

The U.S. economy grew at its slowest pace in nearly two years as a jump in imports to meet still-strong consumer spending widened the trade deficit, but an acceleration in inflation reinforced expectations that the Federal Reserve would not cut interest rates before September.

 

The slowdown in growth reported by the Commerce Department in a snapshot of first-quarter gross domestic product on Thursday also reflected a slower pace of inventory accumulation by businesses and downshift in government spending. Domestic demand remained strong last quarter.

 

The economy grew at a 3.4% rate in the fourth quarter. The first quarter growth’s pace was below what U.S. central bank officials regard as the non-inflationary growth rate of 1.8%.

 

The so-called core PCE price index is one of the inflation measures tracked by the Fed for its 2% target. The central bank has kept its policy rate in the 5.25%-5.50% range since July. It has raised the benchmark overnight interest rate by 525 basis points since March of 2022.

 

Consumer spending grew at a still-solid 2.5% rate, slowing from the 3.3% growth pace rate notched in the fourth quarter.

Economists worry that lower-income households have depleted their pandemic savings and are largely relying on debt to fund purchases. Recent data and comments from bank executives indicated that lower-income borrowers were increasingly struggling to keep up with their loan payments.

 

Business inventories increased at a $35.4 billion rate after rising at a $54.9 billion pace in the fourth quarter.

Inventories subtracted 0.35 percentage point from GDP growth.

 

The trade deficit chopped off 0.86 percentage point from GDP growth. Excluding inventories, government spending and trade, the economy grew at a 3.1% rate after expanding at a 3.3% rate in the fourth quarter.

 

First Published: Apr 25 2024 | 8:16 PM IST