First-Quarter GDP Slows as Consumers Trim Spending

And now it seems the slowdown is here.

Markets slumped by more than 1% Thursday morning (April 25) on the latest reading on gross domestic product (GDP) growth, courtesy of the Bureau of Economic Analysis — which we note is an advance estimate of first-quarter results.

Per the latest release, the economy grew at an annualized pace of 1.6% during the quarter, which missed estimates of around 2.5% growth, and represented a significant slowdown from the fourth quarter’s annualized pace of 3.4%.

Getting a bit more granular, the data show that personal consumption growth declined to 2.5% from 3.3% seen in the fourth quarter. The spending slowdown reflected a decrease in spending on goods. At the same time, the BEA noted that the personal consumption expenditures (PCE) price index increased 3.4%, compared with an increase of 1.8% in the fourth quarter of last year.

In other words, inflation is rising faster than spending, which indicates there’s pressure on consumers showing up in the numbers — and dragging on the economy’s growth.

The BEA’s data showed that in the first quarter, the personal saving rate — personal saving as a percentage of disposable personal income — was 3.6% in the March period, compared with 4% in the fourth quarter.

We’ll get even more incremental data on Friday when details on personal spending and income, by various categories are released for March. It may be the case that the final estimate of GDP data for the first quarter are revised a bit.

Consumers Grappling With Inflation

But the trend illuminates that consumers, the key engine driving the economy, are finding it tougher to grapple with rising prices and to keep filling their baskets at previous rate. That could signal tougher times ahead for merchants, for the issuers and the payment networks, too. Visa, for example, noted in its latest results that credit card spending grew at the same pace as the quarter previously, and debit ticked up slightly. Other PYMNTS coverage detailed earlier in the month that, per commentary from the big banks and from Discover Financial, lower-income consumers are slowing their purchases of many types of goods, including everyday essentials.

PYMNTS Intelligence data has found that 58% of consumers live paycheck to paycheck. For younger consumers, who tend to earn less than their older peers, financial distress is pervasive. At 59%, Gen Z consumers are not the generation that reports living paycheck to paycheck at the highest rates. The share of zillennials and millennials living paycheck to paycheck sits at 63% each. Gen Z consumers, at 34%, are the most likely to cite nonessential spending as a reason they live paycheck to paycheck — which may be an area where we see further pullback … and in turn, more pressure on GDP.