The growth of the U.S. economy in the first quarter was slower than initially thought, following adjustments to figures on consumer and equipment expenditures, along with a slight decrease in a critical inflation indicator. These changes might influence the Federal Reserve to consider reducing interest rates before year-end. According to the Commerce Department’s latest report on Thursday, the Gross Domestic Product (GDP), which represents the total economic output, increased 1.3% annually from January to March. This figure is a decline from the preliminary estimate of 1.6% and a significant slowdown from the 3.4% growth rate in the last quarter of 2023.
The downward revision of the first quarter’s growth rate comes amid a backdrop of weaker retail sales and equipment investment indicators. The detailed breakdown of the report revealed a downward adjustment in consumer spending growth to 2.0% on an annualized basis, mainly due to a larger-than-initially-reported decrease in household expenditure on goods. The decline in spending on durable goods, such as cars and their parts, had the most substantial negative impact on growth since the third quarter of 2021, even as the report noted improvements in business and residential investments.
Inflation rates for the first quarter were also revised downwards to 3.3% from 3.4%, marking the most significant increase in quarterly inflation pressure in a year. Despite a general easing of inflation throughout the previous year, the beginning of 2024 saw higher-than-expected inflation rates, causing Federal Reserve officials to delay their plans for interest rate reductions.