GDP grew by 1.1%: what does this indicate for the economy? –

(NewsNation) — The real gross domestic product of the United States rose 1.1% in the first quarter of 2023, according to an estimate released by the Bureau of Economic Analysis.

But even though there was this increase, headlines in the media and analysts follow raise the alarm, but why?

One reason is that this 1.1% is relatively small growth.

NewsNation Partner The hill reports that 1.1% is a slower rise than the 2% jump initially forecast by Wall Street analysts after GDP grew 2.6% in the fourth quarter of last year.

The Bureau of Economic Analysis’ report notes There were increases in consumer spending, exports, federal government spending, state and local government spending, and nonresidential fixed investment this quarter. However, these were partially offset by declines in private investment in inventories and residential fixed investment.

A sharp reduction in business inventories subtracted about 2.3 percentage points from overall growth. Businesses often slash inventories when they anticipate a looming recession, notes the Associated Press.

According to the financial website MarketWatch, in this case, higher consumer spending explains part of the inventory decline, but companies also cut production because they expected slower sales.

Economic growth is gradually declining due to pressure from interest rate hikes from the Federal Reserve and high inflation, Bloomberg wrote. Earlier in the year, the economy “advanced,” according to the publication, due to unusually warm weather. But as the quarter wore on, households and businesses stopped spending as much.

So even though GDP is growing, some still have a negative outlook on the economy. Andrew Hunter of Capital Economics even wrote in a research note that he expects a combination of higher interest rates and tighter credit conditions to push the economy into a mild recession, though experts have not reached a consensus on whether it will. happen for sure.

Bottom line: The economy is still expanding, but it’s caught between high inflation and rising interest rates, according to MarketWatch analysis.

“As higher interest rates and tighter bank lending standards reduce the availability of credit for businesses, we expect job growth to stall and economic growth to turn negative as the economy enters recession. (in the second half) of 2023,” said chief national economist Kathy Bostjancic. she was quoted on MarketWatch as saying.

Still, the White House touted the estimates on Thursday, with President Joe Biden saying in a statement that the US economy “remains strong in the transition to steady and stable growth.”

“This past quarter, real personal disposable income increased and American consumers continued to spend, even as the overall pace of growth moderated,” Biden said. “This follows reports that our economy added more than 300,000 jobs per month during the quarter, the unemployment rate hovered near a 50-year low, and the labor force participation of working-age Americans is the highest in 15 years.

Associated Press contributed to this report.

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