(NewsNation) — America’s real gross domestic product increased by 1.1% in the first quarter of 2023, according to an estimate released by the Bureau of Economic Analysis.
But despite the fact that there was this increase, headlines in the media and analysts are still raising the alarm — but why?
One reason is that this 1.1% is relatively small growth.
NewsNation partner The Hill reports the 1.1% is a slower climb than the 2% jump initially forecasted by Wall Street analysts after the GDP grew 2.6% in last year’s fourth quarter.
The Bureau of Economic Analysis’ report notes there were increases in consumer spending, exports, federal government spending, state and local government spending and nonresidential fixed investment this quarter. However, these were partly offset by decreases in private inventory investment and residential fixed investment.
A sharp reduction in business inventories subtracted roughly 2.3 percentage points from overall growth. Companies typically slash their inventories when they anticipate a coming downturn, the Associated Press notes.
According to the financial website MarketWatch, in this case, higher consumer spending accounted for some of the decline in inventory, but companies also cut production as they expected slower sales.
Economic growth is gradually downshifting because of the pressure of interest rate hikes by the Federal Reserve and elevated inflation, Bloomberg wrote. At the start of the year, the economy “bounded ahead,” per the publication, because of unseasonably warm weather. But as the quarter continued, households and businesses stopped spending as much.
That is why, although the GDP is growing, some still have a negative outlook about the economy. Andrew Hunter of Capital Economics even wrote in a research note wrote that he expects a combination of higher interest rates and tightening credit conditions to push the economy into a mild recession — although experts have not come to a consensus on whether one is going to happen for sure.
In short: the economy is still expanding, but it’s stuck between high inflation and rising interest rates, per analysis from MarketWatch.
“As higher interest rates and tighter bank lending standards cut the availability of credit for businesses, we expect employment growth to stall and economic growth to turn negative as the economy enters recession (in the second half) of 2023,” Nationwide Chief Economist Kathy Bostjancic was quoted in MarketWatch as saying.
Still, the White House touted Thursday’s estimates, with President Joe Biden saying in a statement that the American economy “remains strong as it transitions to steady and stable growth.”
“This past quarter, real personal disposable income increased and American consumers continued to spend, even as the overall pace of growth moderated,” Biden said. “This follows reports that our economy added more than 300,000 jobs per month during the quarter, the unemployment rate remained near a 50-year low, and workforce participation for working-age Americans is the highest in 15 years.
The Associated Press contributed to this report.