United States GDP Rose in Q1 2023, Slows From 2022
The United States GDP grew by an annualized 1.1% for the first quarter of this year according to the latest figures from the Bureau of Economic Analysis (BEA) in its advance estimate.
US Advance GDP data released last Thursday showed an annualized increase over the first quarter of 2023 of only 1.1%, much lower than the 2% which had been widely expected or the previous quarter’s 2,6%. This figure will be a disappointment to many analysts.
Despite the increase in economic activity for the first three months of 2023, it was slower than its equivalent over the third and fourth quarters last year, where growth was 3.2% and 2.6% respectively. This was when the United States pulled itself out of a technical recession after the economy contracted for the first two quarters of 2022.
The BEA also revealed that the current US Dollar GDP, which does not account for the impact of inflation on the current value of GDP, increased by 5.1%, which was again down in the final quarter of last year when it increased by 6.6%.
The price index for gross domestic purchases, the market value of purchases regardless of where they were produced, increased by 3.8% in the first quarter of 2023.
This was a 0.2% increase in the final quarter of 2022, which perhaps is not a good sign for the desired calming of inflation, even though prices have been falling over the past six months, with inflation at only 5% annualized last month in March.
Current dollar personal income also grew in the first quarter of this year by $278.9 billion.
Wage increases and a rise in government social security benefits were the main driving forces of this escalation in personal income. Yet this was down quarter-on-quarter, as income rose by $398.8 billion in the final three months of last year.
All eyes will be on the Federal Reserve when the Federal Open Market Committee meets on 3 May, to discuss whether to increase or to pause the current interest rate-raising cycle.
The cost of borrowing reached 5% in March.
The CME FedWatch Tool, where participants forecast what the next move will be on rates, firmly indicates that there will be a further hike in interest rates. Overall, 76.7% of respondents said that rates will climb to 5.25% next week.
An increase in consumer spending on goods and services was the spearhead for the annualized rise in GDP, the BEA said. Within goods, the leading contributor was motor vehicles and parts. For services, this was mostly boosted by health care, food services, and accommodation.
There was an increase in the flow of export goods where again consumer goods were the driving force, except from a less than satisfactory sales performance from food and the automotive sector.
However, these increases were partly offset by decreases in services, especially in transport.
Imports also performed positively due to the increases in the sales of durable consumer goods and automotive vehicles, engines, and parts.
Federal government alongside state and local government spending was also a significant factor in the increase in GDP.
In the private sector, there was a decrease in inventory investment, which was the main reason for the quarter-on-quarter deceleration in GDP growth, alongside the slowdown in non-residential fixed investment.
This was led by wholesale trade with declines in investment mainly in machinery, equipment, and supplies.
The manufacturing sector also showed a similar pattern, where there were falls in stock and supplies of transportation equipment, as well as in petroleum and coal products.
The US Dollar barely reacted to the lower-than-expected GDP data, presumably as analysts concluded that although the figure was disappointing, it was not even close to persuading the Fed not to hike at its meeting this week.
US stock markets did react, however, with the S&P 500 Index and the Nasdaq 100 Index rising firmly, although it is not clear that this is due to any belief that a rate hike of 25bps will be less likely to happen this week.