US economic growth for last quarter is revised up to a still tepid 1.3 per cent annual rate

WASHINGTON (AP) — The US economy grew at a lackluster 1.3 per cent annual rate from January through March as businesses wary of an economic slowdown trimmed their inventories, the government said in a slight upgrade from its initial estimate.

The government had previously estimated that the economy grew at a 1.1 per cent annual rate last quarter.

The Commerce Department’s revised measure of growth in the nation’s gross domestic product — the economy’s total output of goods and services — marked a deceleration from 3.2 per cent annual growth from July through September and 2.6 per cent from October through December.

Despite the first-quarter slowdown, consumer spending, which accounts for around 70 per cent of America’s economic output, rose at a 3.8 per cent annual pace, the most in nearly two years and an encouraging sign of household confidence. Specifically, spending on physical goods, like appliances and cars, rose 6.3 per cent, also the fastest growth rate since April-June of last year.

A cutback in business inventories shaved 2.1 percentage points off January-March growth.

The steady slowdown in economic growth is a consequence of the Federal Reserve’s aggressive drive to tame inflation, with 10 interest rate hikes over the past 14 months. Across the economy, the Fed’s rate increase have elevated the costs of auto loans, credit card borrowing and business loans.

With mortgage rates having doubled over the past year, the real estate market has already taken a beating: Investment in housing fell at a 0.2 per cent annual rate from January through March. In April, sales of existing homes were 23 per cent below their level a year earlier.

As the Fed’s rate hikes have gradually slowed growth, inflation has eased from the four-decade high it reached last year. Still, consumer prices were still up 4.9 per cent in April from a year earlier — well above the Fed’s 2 per cent target.

The economy’s slowdown is widely expected to lead to a recession later this year.

In addition to higher borrowing rates, the economy’s other obstacles include a cutback in lending as banks conserve cash after three big bank failures in recent months.

There is also the looming risk that House Republicans will refuse to raise the statutory limit on what the government can borrow, if President Joe Biden and the Democrats don’t agree to sharp spending cuts. That would leave the Treasury unable for the first time to pay all its bills on time. Economists say a protracted debt default would cause downgrades of the US credit and likely trigger a recession deeper and sooner than the one that is already expected.

For now, though, most sectors of the economy other than housing are showing surprising resilience. Retail sales have continued to rise. So have orders for manufactured goods.

Most significantly, the nation’s job market remains fundamentally solid. In April, employers added 253,000 jobs, and the unemployment rate matched a 54-year low. The pace of layoffs remains comparatively low. And job openings, though declining, are still well above pre-pandemic levels.