US Economy Slows Down in Q1 with Weak 1.1% Growth

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The U.S. economy slowed down significantly from January to March compared to the past few months, only growing at a rate of 1.1% each year. This slowdown was caused by higher interest rates in the housing market and companies decreasing their supplies of products. In other words, the Gross Domestic Product (GDP), which tracks economic output for the nation, was quite weak after it had grown 3.2% from July to September and 2.6% from October to December.

Consumer spending in the U.S. is very important as it makes up around 70% of total economic activity and it stayed strong, growing at a rate of 3.7%. People are buying lots of goods, which is the highest level since 2021.

Economists predicted that the whole economy would grow at a rate of 1.9% during the first quarter of the year. But, this growth was slowed down because businesses decreased their inventories by a lot – which was almost 2.3 percentage points. Businesses usually cut down their inventories when they think something bad is going to happen in the future.

The economy is slowing down because of changes made by the Federal Reserve. They increased interest rates nine times in the past year and this is causing people’s borrowing costs to go up. The effects from higher borrowing costs will probably cause a recession sometime soon. Last year inflation reached very high levels, but it has decreased some since then. Even though it is lower now, it still above what the Federal Reserve wants it to be (which is 2%).

The housing market has been really struggling recently because of higher loan rates. Banks also made it harder to get loans for buying a house or car, and money to grow your business. This happened since two big American banks failed last month.

Andrew Hunter from Capital Economics said that the economy was not doing as well as they had thought at the beginning of this year. He also believes that because interest rates and credit conditions have become tighter, we will soon lean into a minor recession.

Economists are worried that the Federal Reserve’s decisions to increase interest rates might have bigger effects down the road. The Federal Reserve hopes that it won’t cause the economy to collapse, but many people are doubtful. A research group called the Conference Board looked at their economic model and found that there is about a 99% chance that the US will face recession in the next year.

The economy had been doing well between September 2020 and March 2022. During this time, lots of shopping happened due to warm weather and bigger Social Security checks during January. However, people stopped shopping during February and March which caused the financial situation to change.

In the last month, the chance of a financial crisis like we saw back in 2008 has been much lower. But some banks have still been reducing their lending and this could slow down how much the economy grows.

Politicians are creating more risk. Republican representatives in Congress are refusing to increase the amount of money that can be borrowed by the US government if Democrats and President Joe Biden don’t accept some spending restrictions and cuts. If this happens, it could be a disaster as it would cause the biggest financial market – US Treasury bonds – to fail and lead to a worldwide economic crisis.

The situation around the world looks worse now. The International Monetary Fund said that the global economy will slow down because of increasing loan costs, financial worries, and high prices. This means American companies who sell things to countries outside the US could get hurt.

At the beginning of last year, people were worried that America was entering a recession because our economy had gotten smaller for two quarters in a row. But then, during the second half of 2022, things got better! People kept shopping and this really helped to make our economy grow again.

In the past year and a half, jobs have been plentiful – 2021 and 2022 were especially successful in terms of how many jobs were created. This January and February were also great for finding work, but it slowed down a bit in March. With all these job opportunities, people are feeling confident and have more money to spend on shopping!

The government is publishing a report about how many jobs were added in the month of April on May 5. According to research done, it looks like 185,000 jobs were added, which isn’t a huge number but still decent.