San Francisco Frontiers - US economic growth slows significantly in first quarter

The world's biggest economy grew 1.6 percent in the first quarter, the Commerce Department said, missing analysts' expectations of a larger 2.4 percent rise.

This was also a clear slowdown from the 3.4 percent increase seen in the final three months of last year.

While the latest figure still shows expansion, economic pressures could weigh on President Joe Biden as he seeks reelection in November.

Biden has been working to improve perceptions surrounding his handling of the economy even as soaring inflation has eased since the Covid-19 pandemic and the jobs market remained solid.

On Thursday, the slowing in growth "primarily reflected decelerations in consumer spending, exports, and state and local government spending," said the Commerce Department.

There was also a "downturn in federal government spending," the report said.

Consumption has been more resilient than anticipated last year, even as economists predicted that spending would cool as households depleted their savings from the pandemic period and while borrowing costs stayed high.

A key factor has been a robust labor market, fueling job and wage gains.

All of this has boosted optimism that the country is achieving a "soft landing" where inflation moves lower on the back of higher interest rates without triggering a recession.

For now, Ryan Sweet, chief US economist at Oxford Economics expects consumer spending will still help to support the economy this year.

- 'Uncertain' outlook -

Consumers remain willing and able to spend "even if they are being more scrutinous in the face of high prices," said EY chief economist Gregory Daco.

"Looking ahead, we see the economy gently cooling as slower labor demand, easing wage growth, stubborn inflation, and tight credit conditions constrain private sector activity," he added.

Rubeela Farooqi, chief US economist at High Frequency Economics, noted that the latest growth rate was the weakest since 2022.

"The outlook going forward is uncertain," she said.

Labor market strength will probably prop up household spending and economic growth.

But stubborn inflation could risk the US central bank keeping interest rates higher for a longer period of time, she said. This could weigh on consumers and businesses in the coming quarters.

But with GDP figures in the first quarter potentially revised later on, economist Robert Frick of the Navy Federal Credit Union believes the latest number "shouldn't be taken as a fundamental downshift in the economy."

F.Young--SFF