WASHINGTON — The United States economy grew at a slower pace than initially estimated in the first quarter, while consumer inflation remained above target levels, according to official data released Thursday.
The Commerce Department reported that gross domestic product expanded at an annual rate of 1.6 percent in the first quarter, a sharp downgrade from the initial estimate of 2.0 percent. The revision was driven by softer consumer spending than previously estimated, at 1.4 percent versus the initial 1.6 percent, and by a larger drag from inventories.
Meanwhile, the personal consumption expenditures price index, the Federal Reserve’s preferred inflation gauge, rose 0.4 percent in April, below expectations for a 0.5 percent increase. However, annual inflation remained at 3.8 percent, well above the Fed’s 2 percent target.
Real household spending increased by only 0.1 percent month-on-month in April, indicating a sluggish start to the second quarter. Since consumer spending accounts for approximately 70 percent of the US economy, higher energy prices linked to Middle East tensions are weighing on both inflation and economic activity, eroding household purchasing power.
Real household disposable incomes have declined for three consecutive months, leaving them well below pre-pandemic trend projections. The household saving ratio has dropped to 2.6 percent from 3.2 percent in March, far below the long-run average of 6 percent.
Analysts note that the combination of softer inflation and weaker growth has prompted a muted market reaction, with Treasury yields falling 3 to 4 basis points across the curve. The data suggests the Federal Reserve is likely to maintain a cautious stance over the summer months until policymakers are confident that a surge in energy prices has passed and will reverse.