March 28, 2024

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US economic growth slowed in the first quarter;  Weekly unemployment claims decrease

US economic growth slowed in the first quarter; Weekly unemployment claims decrease

WASHINGTON (Reuters) – U.S. economic growth slowed more than initially expected despite higher consumer spending and activity moderated further as the effects of higher interest rates spread.

In its pre-estimation of first-quarter gross domestic product growth Thursday, the Commerce Department said gross domestic product increased at a 1.1% year-on-year rate in the most recent quarter. The economy grew at a 2.6% pace in the fourth quarter. Economists polled by Reuters had expected gross domestic product to rise by 2.0%.

Despite the slowdown, which mostly reflected a pullback from weak investment in inventory, the Fed is on track to raise interest rates by another 25 basis points next week. The Fed has raised its policy rate by 475 basis points since last March from a near zero level to the current range of 4.75%-5.00%.

Although the economy wasn’t in a recession last quarter, the landscape is now very different.

Credit conditions have tightened in the wake of recent financial market turmoil, which combined with the Fed’s fastest rate-raising cycle since the 1980s raised deflationary risks by the second half of the year.

After a rally in January, which economists attributed to unusually mild weather and the difficulty of adjusting data for seasonal fluctuations, economic reports took on a softer tone, with retail sales falling in February and March.

However, consumer spending grew at a faster rate in January-March than the pedestrian pace of 1.0% recorded in the fourth quarter. Consumer spending, which accounts for more than two-thirds of US economic activity, is supported by a tight labor market, characterized by an unemployment rate of 3.5%.

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A separate report from the Labor Department on Thursday showed that initial claims for state unemployment benefits fell by a seasonally adjusted 16,000 to a seasonally adjusted 230,000 for the week ending April 22nd. Economists had expected 248,000 claims in the final week. Although claims, which have risen since March, remain well below levels that could cause concern about the labor market, reduced access to credit for businesses and households is hurting demand and ultimately employment.

The number of people receiving benefits after an initial week from Help, a proxy for employment, fell by 3,000 to 1.858 million during the week ending April 15, the claims report showed.

The so-called continuing claims data covered the period during which the government surveyed households for the unemployment rate for April.

Continuing claims remain low by historical standards as some laid-off workers quickly find employment. There were 1.7 jobs for every unemployed person in February.

Despite the dark clouds over the economy, some economists hoped to avert a recession. They noted that fears of a recession are lowering commodity prices such as oil, which could help reduce cost pressures for businesses and benefit the economy as a whole.

Oil prices have reversed all their gains since the Organization of the Petroleum Exporting Countries (OPEC) and its allies such as Russia announced in early April an additional production cut until the end of the year.

(Reporting by Lucia Mutecani) Editing by Andrea Ricci

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