Economic growth slowed to 1.1% in early 2023
The tepid gross domestic product figures released Thursday — which came in significantly lower than the 1.9 percent of annual growth analysts expected — have only added to fears of a coming recession.
The US economy wobbled in the first months of 2023, growing at an annual rate of 1.1 percent, as higher interest rates and a banking crisis dragged down activity across sectors.
The latest figures, released Thursday by the Bureau of Economic Analysis, mark a sharp slowdown at a time when Wall Street is already bracing for recession, in part because of fears that the banking sector’s troubles will curtail lending. By comparison, the US economy grew by 2.6 percent in the last three months of 2022.
"The economy is in a very unsettling, dicey situation," said Joseph LaVorgna, chief economist at SMBC Nikko Securities America. "All forward-looking measures are pointing to significant slowing."
Three years after the 2020 coronavirus recession — the steepest and shortest on record — the US economy remains resilient but shaky. Businesses are hiring, people are getting raises, and families are continuing to spend.
But retail sales have fallen for two months in a row, manufacturing output is slumping, and bank lending remains depressed. Meanwhile, major companies such as 3M and Gap are laying off thousands, and concerns of a banking crisis have reemerged this week, after shares of First Republic Bank lost half their value in one day. And policymakers are still grappling with inflation, which has eased considerably from 40-year highs, but is still above historic norms.
The tepid gross domestic product figures released Thursday — which came in significantly lower than the 1.9 percent of annual growth analysts expected — have only added to the gloom. The data will inform policymakers as they consider the cumulative effect of a year of rapid interest rate hikes, as well as the debt-ceiling battle roiling Washington. A failure to reach a deal between President Biden and congressional Republicans in the coming months could send global financial markets into a tailspin and further strain the economy.
Even so, Biden applauded the recent growth and said his administration’s investments in manufacturing and supply chains had helped create a record 12.5 million jobs over the past two years.
"Today, we learned that the American economy remains strong, as it transitions to steady and stable growth," he said in a statement Thursday.
But weaknesses continue to emerge. The Federal Reserve’s aggressive fight against inflation is hampering large parts of the economy, including housing and manufacturing. The job market and consumer spending, while robust, are slowing. And there are growing fears that a pullback in banks’ willingness to lend could freeze business investments and job creation. Many economists are predicting a recession later this year.
"We are seeing growing cracks in the economic foundation," said Lydia Boussour, a senior economist at EY-Parthenon who expects a mild downturn in the coming months. "Consumer spending has been quite strong, but the report is backward-looking and overstates some of the strength of the consumers and the overall economy. We know the economy lost momentum as the quarter progressed, which sets the stage for weaker growth."