First Quarter US Economic Growth Falls Below Estimates at 1.6% Annual Pace

The US economy grew at a slower pace than expected in the first quarter, according to the Bureau of Economic Analysis’s advance estimate of first quarter US gross domestic product (GDP). The economy grew at an annualized pace of 1.6%, significantly lower than economists’ estimates of 2.5%.

This softer-than-expected growth is seen as a sign that the Federal Reserve’s historic interest rate hikes are putting pressure on consumers and the economy. Investors have been closely watching economic data releases for clues on when the central bank will begin to lower rates.

Personal consumption growth also declined to 2.5% from 3.3% in the prior quarter, falling short of economists’ expectations of a 3% increase. The deceleration in real GDP was attributed to slowdowns in consumer spending, exports, and government spending.

The slower economic growth came alongside a surprisingly high inflation reading, with the “core” Personal Consumption Expenditures index growing by 3.7% in the first quarter, above estimates and significantly higher than the previous quarter.

Following the release of the GDP data, stock futures tied to major indexes dropped, while bond yields rose. The 10-Year Treasury yield reached above 4.7% for the first time since early November 2023.

The unexpected slowdown in economic growth has raised concerns among economists and investors, who are now closely monitoring the situation for further developments. Federal Reserve chair Jerome Powell emphasized the need to let data and the evolving outlook guide future policy decisions.