Economic Matters
Economic growth slowed sharply in first quarter of 2023; consumer spending held solid, but for how much longer?
The Bureau of Economic Analysis’ advance estimate of real GDP for the first quarter of 2023 showed an increase of 1.1 percent compared to the fourth quarter of 2022 on a seasonally adjusted annualized basis (SAAR). Since an outright contraction in real GDP in the first half of 2022, the economy expanded at its slowest pace in Q1 2023. Measured on a year-over-year basis, real GDP increased 1.6 percent, inching upward from 0.9 percent growth in Q4, but still lower than in the six quarters prior.
Given the uncertainty surrounding inflation, strong employment, and trade, it shouldn’t come as a surprise that beneath the surface conflicting signals abound. The business sector is girding for recession. Investment in facilities, equipment and inventories dropped 12.5 percent SAAR in Q1, the third decrease in the last four quarters. Meanwhile, consumer spending increased 3.7 percent, with a 16.9 percent surge in outlays on durable goods.
Despite the seemingly buoyant first quarter numbers, all is not well with the consumer. Monthly data on retail sales growth show a downward trend over the course of the quarter. The Conference Board’s Consumer Confidence Index is similarly losing momentum, falling in April to its lowest level so far this year. In its monthly release, the Conference Board notes, “Overall purchasing plans for homes, autos, appliances, and vacations all pulled back in April, a signal that consumers may be economizing amid growing pessimism.”
Rising interest rates are one of the reasons behind the coming retrenchment. With the Federal Reserve increasing rates at the fastest pace in decades, and on track for another 25 basis point hike next week, borrowing costs are beginning to bite. News of layoffs are becoming a daily headline. And beyond that there are the estimated 80 million American consumers who lack reliable access to credit to cushion the blow of a job loss or other financial setback.
April 27th, 2023
