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GDP Growth Slows to 1.3%

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GDP Growth Slows to 1.3%

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The U.S. economy expanded at an annual rate of just 1.3 percent in the first quarter, according to revised government data released Thursday, reflecting a slower pace than earlier estimates.

This marks the smallest increase in gross domestic product in nearly two years. Previous estimates had placed the growth rate at 1.6 percent for the first quarter.

The deceleration in consumer spending is likely tied to inflation, which has reduced household purchasing power. Furthermore, the majority of the excess savings accumulated during the pandemic through stimulus programs and COVID-related economic restrictions have now been exhausted.

The largest factors contributing to the slowdown were a growing trade deficit and a smaller rise in business inventories. Companies generally reduce inventories when anticipating weak sales.

Trade and inventories are highly variable components of GDP, often changing direction from one quarter to another outside of recessions.

The revised data complicates the Biden administration’s efforts to convince the public of its effective economic management. The majority of U.S. voters disapprove of President Biden’s handling of the economy, which has negatively impacted his overall approval rating.

Economists had anticipated the downward revisions, though the extent of the reductions in consumer spending and overall economic growth surpassed median expectations.

The more modest growth figures are unlikely to impact monetary policy. Federal Reserve officials have indicated that they require several months of data showing that inflation is sustainably returning to their two percent target.

 

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