(Reuters) – The US economy grew less than expected in the first quarter, according to a first estimate of gross domestic product (GDP) released on Thursday by the Commerce Department.

United States GDP increased by 1.6% at an annualized rate over the January-March period after +3.4% in the fourth quarter of 2023. The Federal Reserve estimates that a growth rate of less than 1.8% will not does not create inflation.

Economists polled by Reuters on average forecast growth of 2.4%.

The slowdown in American growth reflects in particular the slower pace of business inventory building and the reduction in public spending. Domestic demand, on the other hand, remained strong during the last quarter.

“This report contains contradictory messages,” notes Olu Sonola, head of economic research at Fitch. “If growth continues to decelerate slowly, but inflation moves sharply in the wrong direction, a Fed interest rate cut in 2024 looks increasingly out of reach.”

Inflation jumped, with the underlying PCE index rising 3.7% after 2.0% in the fourth quarter.

Consumer spending grew at a still solid 2.5%, up from 3.3% in the fourth quarter.

Economists fear that low-income households have already exhausted their savings and are financing their purchases on credit. Recent data and comments from bank executives suggest that low-income borrowers are finding it increasingly difficult to meet their repayments.

Business inventories increased by $35.4 billion after increasing by $54.9 billion in the fourth quarter. They subtracted 0.35 percentage points from GDP growth.

The trade deficit, for its part, had a negative impact of 0.86 percentage points. Excluding inventories, government spending and trade, the American economy grew at a rate of 3.1%, after growth of 3.3% in the fourth quarter.

(Written by Corentin Chappron, edited by Kate Entringer)

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