U.S. Economy Growth Slows In Q1, But Resiliency Remains
The U.S. economy slowed in the first quarter, but consumer spending remains solid and outplaced the first three months of 2023, according to a new report from the National Retail Federation (NRF).
“The economy lost some spring in its step during the first quarter as the pace of growth declined, and the downshift came with an unexpected bout of inflation,” said Jack Kleinhenz, chief economist for the NRF, noting that prices for services are still increasing even as prices for goods level off. “But even with signs that the economic expansion is decelerating, the economy remains resilient, boosted by a solid job market and continued spending by consumers and businesses.”
His comments came in the May issue of NRF’s Monthly Economic Review, which said gross domestic product grew 1.6% in the first quarter, less than half the 3.4% seen in the fourth quarter of 2023 and the lowest level since 2.1% in the second quarter of 2023.
“While substantial progress has been made on inflation since its peak in 2022, high prices are sticking around longer than expected,” Kleinhenz said.
The Personal Consumption Expenditures Price Index followed by the Federal Reserve showed that year-over-year inflation – driven largely by prices for services – shot up to 3.4% during the first quarter. That compared with 1.8% in the previous quarter.
Despite this growth in prices, Kleinhenz said consumers remain willing to spend on goods and services. He noted consumer spending growth fell from 3.3% in the fourth quarter but still grew 2.5% year-over-year in the first quarter. Total retail sales as reported by the U.S. Census Bureau were stronger than expected in March, rising 4% year-over-year compared with 2.1% in February.
The spending growth came amid economic data that Kleinhenz said “paints a picture that the overall U.S. economy remains in very good shape,” driven largely by a labor market with solid job growth and rising wages.
The three-month average payroll gain reached 276,000 in March, the fastest pace in a year, and the latest Economic Cost Index showed that year-over-year private industry wage growth averaged 4.3% in the first quarter, unchanged from the fourth quarter of 2023. Job openings fell to their lowest level in three years in March, signaling the labor market is loosening and potentially taking pressure off wage growth.
With the first quarter concluded, employment numbers released recently pointed to continued economic growth but with a softening trend in the labor market. Payrolls grew by 175,000 jobs in April and the unemployment rate rose slightly to 3.9%, compared with 3.8% in March.
