US Q1 GDP Growth Misses Forecasts

Thursday 27th April 2023 – 15:01 (BST)

Figures released by the US Bureau of Economic Analysis have indicated the US economy experienced a weaker-than-expected growth rate of 1.1% in the first quarter of 2023, according to preliminary estimates. This marked a slowdown from the 2.6% growth rate seen in the previous quarter and missed market expectations of 2% growth.

The lacklustre growth was attributed to a decline in business investment, decreasing inventories and rising interest rates which continued to have a negative impact on the housing market. More notably, it showed the slowest pace of economic expansion since Q2 2022.

Residential fixed investment contracted for the eighth consecutive quarter, with a decline of 4.2% compared to a drop of 25.1% in Q4. Private inventory investment also subtracted 2.3 percentage points from the GDP, compared with an addition of 1.47% in the previous quarter. Furthermore, non-residential fixed investment growth slowed considerably from 4.0% to 0.7%.

Despite these challenges, consumer spending growth picked up, rising to 3.7% from 1% in Q4, despite high inflation levels. Public spending also saw a faster increase of 4.7% compared to 3.8%. Additionally, net external demand contributed positively to the GDP as exports rose more than imports.

USD demand fell slightly following the news with attentions now turning to the Federal Reserves next interest rate decision in June. Analysts are now unsure if the central bank believes the US economy will be strong enough to sustain further rate hikes beyond the current 4.75 – 5% range.