US economic growth slowed in the first quarter by more than expected as tepid business investment and a pullback in inventories tempered a pickup in consumer spending.
Gross domestic product rose at a 1.1% annualized rate on the back of the strongest consumer spending in nearly two years, the Commerce Department’s initial estimate showed Thursday. Household spending advanced at a 3.7% pace.
The increase in consumer spending reflected gains in both goods and services, including a surge in purchases of motor vehicles. Business investment in equipment posted the biggest drop since the start of the pandemic and inventories subtracted the most from GDP in two years.
The figures illustrate economic growth that is gradually downshifting under the weight of Federal Reserve interest-rate hikes and elevated inflation. While the economy bounded ahead at the start of the year, helped in part by unseasonably warm weather, households and businesses pulled back on spending as the quarter progressed.
The outlook depends largely on the resiliency of the job market. Low unemployment and persistent wage gains have so far allowed consumers to weather high inflation and keep spending.
The Fed’s preferred inflation metrics accelerated. The personal consumption expenditures price index grew at an 4.2% annualized pace in the January to March period. Excluding food and energy, the index rose 4.9%, faster than forecast and the most in a year. March data will be released Friday.
The median projection in a Bloomberg survey of economists called for 1.9% GDP growth and a 4% annualized gain in personal consumption. US stock futures fell, Treasury yields jumped and the dollar strengthened after the release.
Separate data out Thursday showed applications for unemployment benefits fell for the first time in three weeks. Continuing claims, which can offer insight into how quickly out-of-work Americans are able to find a new job, were largely unchanged.
--With assistance from Chris Middleton.
This article was provided by Bloomberg News.