American Economic Growth Slows Down in First Quarter of 2023

Experts warn of headwinds as GDP slumps to 1.1% growth rate, according to data from Bureau of Economic Analysis.

According to an advance estimate released by the Bureau of Economic Analysis, American economic growth has slowed down to a 1.1% annualized rate in the first quarter of 2023, marking a significant deceleration from the previous quarters as various headwinds continue to hinder the country’s recovery from the recession induced by the COVID-19 lockdown. In fact, the latest growth rate is a decline from the 2.6% growth rate in the fourth quarter of 2022, as well as the 3.2% growth rate in the third quarter of 2022.

Reportedly, the rise in real gross domestic product was due to increases in consumer spending, exports, nonresidential investment, and government spending. However, growth was offset by decreases in private inventory investment and residential investment, as well as the reduction of imports, which are all subtractions in the calculation of gross domestic product.

The economic data comes at a time when inflationary pressures are raising expenses and diminishing purchasing power for American consumers and businesses, all of which have been largely induced by supply chain bottlenecks and labor shortages which continue to follow the lockdown-induced recession. Inflation reached 5.0% last month, according to data from the Bureau of Labor Statistics, even as prices for many items remain elevated and wage increases fail to keep pace with price levels.

Despite the inflationary pressures, there was some good news. There was greater real disposable personal income in the first quarter of 2023 relative to the fourth quarter of 2022, and at the same time, the personal saving rate increased.

However, economic actors were also concerned in the first quarter by the sudden failure of Silicon Valley Bank and Signature Bank. This resulted in the implosion of the financial institutions, where the vast majority of account balances exceeded the $250,000 deposit threshold backed by the Federal Deposit Insurance Corporation. Financial regulators had to secure both insured and uninsured accounts to prevent additional bank runs.

Officials at the Federal Reserve concluded in a meeting last month that the turmoil in the financial system warrants a recession forecast for the end of the year. This will then be followed by a recovery over the subsequent two years, according to minutes released by the Federal Open Market Committee and the Federal Reserve Board of Governors. Monetary policymakers have also worked to increase the target federal funds rate over the past year, thereby combatting inflationary pressures while damping economic activity as consumers and businesses see the cost of borrowing money increase.

A recent study from analysts at the National Bureau of Economic Research showed that assets in the overall banking system are presently $2 trillion lower than their book value due to the elevated interest rates. This has prompted additional worries about the sector’s stability.