U.S. financial progress misplaced steam within the first quarter this yr, the Commerce Department stated Thursday, as the opportunity of a light recession brews whereas client spending weakens.
Consumption has boosted the world’s largest financial system, giving it a strong begin to 2023; latest banking sector turmoil and rising rates of interest are more likely to weigh on the outlook.
U.S. gross home product rose at an annual fee of 1.1% from January to March, down from 2.6% within the fourth quarter of final yr.
“Compared to the fourth quarter, the deceleration in real gross domestic product (GDP) in the first quarter primarily reflected a downturn in private inventory investment and a slowdown in nonresidential fixed investment,” the Commerce Department stated.
It added that this was partly offset by an acceleration in client spending and an upturn in exports.
The GDP progress determine “reflected increases in consumer spending, exports, federal government spending,” together with some types of funding, the division stated in a press release.
Economic exercise has been easing because the U.S. central financial institution quickly hiked the benchmark lending fee to deal with cussed inflation. However, the total fallout from latest monetary sector unrest – following the failures of three midsized lenders final month – is but to be seen.
‘Dangerous’ to extrapolate
Retail gross sales had bounced in January, doubtless helped by delicate climate. Still, Ian Shepherdson and Kieran Clancy of Pantheon Macroeconomics cautioned that “it would be dangerous” to extrapolate from obvious power within the first three months.
February and March figures “revealed a lack of momentum, which we expect to persist in the second quarter,” they added in a word.
Consumers might have been prepared to proceed spending as they ate into pandemic-era financial savings, however the rundown fee has slowed, Shepherdson and Clancy stated.
Meanwhile, banking sector stress may convey tighter credit score situations, making it more durable for households and companies to get loans.
Recent unrest within the banking system and tighter lending requirements are anticipated to lead to a extra extreme recession than anticipated within the second quarter. However, it will nonetheless be a light downturn, Ryan Sweet of Oxford Economics advised Agence France-Presse (AFP) forward of the most recent launch.
“Our business cycle indicator shows the economy lost momentum in February and is close to turning negative,” he stated.
While giant American banks have emerged comparatively unscathed from latest pressures, “the turmoil may not yet be over and uncertainty is high,” stated Sweet.
“The economic costs have yet to be fully felt as banks are tightening lending standards and deposits at small banks have plunged,” he stated.
Source: www.dailysabah.com
