U.S. economy expands, albeit more slowly, in 1st quarter

Against a muddled economic picture, first-quarter 2023 U.S. real gross domestic product (GDP) grew for the third straight quarter but at a slower rate, despite the strongest gain in consumer spending since mid-2021.

Real GDP rose at an annual rate of 1.1% (seasonally adjusted) to $20.24 trillion in Q1, the U.S. Bureau of Economic Analysis (BEA) reported in advance estimates on Thursday. That followed 12-month upticks of 2.6% in the fourth quarter and 3.2% in the third quarter of 2022.

Excluding annual declines of 0.6% in the second quarter and 1.6% in the first quarter of 2022, the nation has seen six consecutive quarters of GDP growth since economic output plummeted in mid-2020 at the peak of the COVID-19 pandemic.

Sequentially, GDP inched up 0.3% from the 2022 fourth quarter to the 2023 first quarter. Q1-to-Q1 growth came in at 1.6%, according to the BEA.

Source: U.S. Bureau of Economic Analysis, 2023 first-quarter gross domestic product report.

First-quarter 2023 personal consumption expenditures (PCE) totaled $14.43 trillion, up 3.7% at an annual rate and 2.6% year over year. PCE growth hadn’t hit 3% on a 12-month basis since the 2021 fourth quarter. Consumer spending edged up 0.9% from Q4 2022 to Q1 2023 and accounted for about 70.9% of overall real GDP.

The PCE result was largely in line with the latest U.S. retail sales reported by the U.S. Census Bureau. Retail and foodservice sales climbed 2.9% annually and declined 1% month to month for March, with retail trade sales (excluding motor vehicles, parts stores, gas stations and repair shops) up 1.5% on a 12-month basis yet down 1.2% sequentially.

Real GDP for food and beverages purchased for off-premises consumption—essentially, food-at-home goods—came in at nearly $1.03 trillion in the 2023 first quarter, down 3.4% versus the prior-year period and dipping -0.09% from the 2022 fourth quarter, according to BEA data.

That marked the second straight quarter of flattish food-at-home spending reported by the BEA and reflected virtually flat grocery store sales in March, based on the Census Bureau’s month-to-month figures. Year over year, March grocery retail sales increased 5.3%, in part due to lingering inflation.

Recession fears persist

The first-quarter real GDP numbers appear to counter feelings by many consumers and economists that the U.S. economy is already in recession. Yet the latest GDP showing doesn’t dispel concerns that a recession may be upcoming, especially as growth has slowed and the nation’s economic scene remains puzzling.

On the plus side, GDP has continued to increase, unemployment remains historically low, consumer spending has stayed strong and real wages have risen for many Americans. But recent bank failures, poor stock market performances and layoffs in sectors like technology, high inflation, and the impact of the war in Ukraine on global markets have fed a negative economic outlook. Also uncertain is the potential economic impact of any further interest rate hikes by the Federal Reserve, which is looking to push down inflation.

Source: 84.51° April 2023 Consumer Digest.

Elevated pricing for many consumer goods has continued to take a toll on shoppers, even though inflation has declined in recent months. According to the April Consumer Digest from 84.51°, The Kroger Co.’s data science arm, roughly two-thirds of U.S. households are “extremely concerned” about inflation, especially in essential areas like food, fuel, utilities and health care.

Consumers also think high prices won’t fade anytime soon: 32% believe inflation at its current level will take 12 months or less to end, while 28% expect that to take one to two years, 84.51°’s research showed. As a result, shoppers are taking action. The April Consumer Digest found that 57% of households are cutting back on nonessential spending, and 51% are now opting for lower-cost brands more often. Similarly, 70% of households are seeking more sales, deals and coupons, and 40% are going out to eat and/or ordering food less often.

Only 17% of consumers said they feel comfortable with their finances, compared with 21% who feel uncomfortable and 62% who feel neutral, 84.51° reported. More than a quarter of shoppers (27%) indicated they’re living paycheck to paycheck, whereas 11% said they can’t cover monthly expenses and 33% have little left to spend after expenses.