The US economy grew at a slower pace than expected in the first quarter.
The Bureau of Economic Analysis’s advance estimate of first quarter US gross domestic product (GDP) showed the economy grew at an annualized pace of 1.6% during the period. Economists surveyed by Bloomberg estimated the US economy grew at an annualized pace of 2.5% during the period.
The reading came in significantly lower than fourth quarter GDP, which was revised up to 3.4%.
The softer-than expected print is a sign that the Federal Reserve’s historic interest rate hikes are putting pressure on consumers and the economy. Investors have been closely watching economic data releases for clues on when the central bank will begin to lower rates.
For the quarter, personal consumption growth declined to 2.5% from 3.3% in the prior quarter. Economists had expected a 3% increase.
“Compared to the fourth quarter, the deceleration in real GDP in the first quarter primarily reflected decelerations in consumer spending, exports, and state and local government spending and a downturn in federal government spending,” the BEA said in its release. “These movements were partly offset by an acceleration in residential fixed investment. Imports accelerated.”
The slower than projected economic growth came alongside a surprisingly high inflation reading. The “core” Personal Consumption Expenditures index, which excludes the volatile food and energy categories, grew by 3.7% in the first quarter, above estimates for 3.4%, and significantly higher than 2% gain seen in the prior quarter.
Stock futures tied to all three major indexes shot lower after the release while bond yields rose. The 10-Year Treasury yield (^TNX) added nearly seven basis points to reach above 4.7% for the first time since early November 2023.
Prior to Thursday’s GDP release, an overall healthy reading on the US economy through the first quarter had been a key talking point among economists and the Fed itself when reasoning why the central bank can hold rates high while it waits for inflation to fall further.
“Given the strength of the labor market and progress on inflation so far, it’s appropriate to allow restrictive policy further time to work and let the data and the evolving outlook guide us,” Federal Reserve chair Jerome Powell said on April 16.
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
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