GDP Figures Show Economy Slowing and Consumers Still Spending

The U.S. economy slowed in the first three months of 2023, according to new government data.

Figures released Thursday (April 27) by the Bureau of Economic Analysis (BEA) showed the country’s real gross domestic product (GDP) increased by 1.1% during the first quarter of the year, a period marked by continued inflation, rising interest rates and a banking crisis.

The real GDP rose 2.6% in the fourth quarter of 2022, said the BEA, a division of the U.S. Commerce Department.

“Compared to the fourth quarter, the deceleration in real GDP in the first quarter primarily reflected a downturn in private inventory investment and a slowdown in nonresidential fixed investment,” the BEA report said. “These movements were partly offset by an acceleration in consumer spending, an upturn in exports, and a smaller decrease in residential fixed investment.”

The increase in GDP was driven in part by a rise in consumer spending on both goods and services. In the former category, the lead driver was sales of motor vehicles and auto parts, while healthcare, food services and accommodations led the services category.

This follows data from the Census Bureau earlier this month showing that consumers had pulled back on spending in March, the second straight month of decline.

“Consumers are throttling back on the levers they have in place to conserve at least some financial firepower,” PYMNTS wrote. “It makes sense that in a few key categories, there’s a re-examination of what consumers and households need to have versus what they’d like to have. And when there’s a recalibration of those categories, there’s a mindset that some things can wait.”

That report also noted that the pullback was predicted at the beginning of the year in PYMNTS’ “Economic Outlook and Sentiment” report, which showed 46% of consumers saying they were unlikely to buy expensive electronics this year (whether they did so or not last year). That metric increased to about two-thirds in categories like cars or expensive apparel.

The BEA’s report came two days after the release of The Conference Board’s monthly Consumer Confidence Index, which showed Americans scaling back on major purchases in anticipation of worsening economic conditions.

Also on the decline was the board’s Expectations Index, which is based on consumers’ short-term expectations about income, business and the job market.

“While consumers’ relatively favorable assessment of the current business environment improved somewhat in April, their expectations fell and remained below the level which often signals a recession looming in the short-term,” said Ataman Ozyildirim, the Conference Board’s senior director for economics.

Ozyildirim said consumers believe business conditions will worsen over the next six months, with fewer jobs to be available in the short term.

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