Topline
The U.S. economy expanded at its slowest pace since the second quarter of 2022 to begin this year, reflecting a significant slowdown from 2023’s surprise rapid recovery but still exhibiting few signs of a recession.
President Joe Biden at an Ohio factory in 2022.
Key Facts
Real gross domestic product was 1.6% higher during the first three months of this year than it was in 2023’s fourth quarter on an annualized basis, according to Commerce Department data released Thursday morning.
That compares to consensus economist estimates of about 2.5% growth in GDP, which measures the aggregate value of all American goods and services produced in the period.
It’s well below 2023’s third quarter’s 4.9% and 2023’s fourth quarter’s 3.4%, but economic growth remains solidly positive, no small feat considering the growth-restricting monetary policy enacted by the Federal Reserve to tamp inflation which sent the U.S. into a technical recession two years ago, when GDP declined for two consecutive quarters.
Investors digested the below-expectations GDP release sourly, as S&P 500 futures were down more than 0.7%, with earnings also weighing on equity prices.
Big Number
$28.3 trillion. That was the U.S.’ nominal GDP in the first quarter. The U.S. is by far the largest economy in the world, dwarfing the next-biggest economy, China at $18.5 trillion, and the third-largest, Germany, at $4.6 trillion.
Key Background
Real GDP accounts for inflation and currency exchange differences, while nominal just accounts for the full-dollar amount of output in a timeframe. Real GDP growth of about 2% is just about where a highly developed economy like the U.S. should expect to be, and median Fed forecasts call for 1.8% growth in the long run. But the steady growth is a surprise, considering just a year ago economists and policymakers alike called for close to zero growth as the Fed moved against inflation, hiking interest rates to their highest level since 2001. Higher rates typically bring extended economic downturns, as they make borrowing of all kinds more expensive, making consumers less willing to take on pricier loans for items such as cars and houses and companies more hesitant to take out loans to finance operations as interest expenses weigh on bottom lines.
