U.S. economy grew at 1.6 percent annual rate in first quarter 2024, a sharp slowdown

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U.S. economic growth slowed in the first three months of the year, with gross domestic product growing at an annualized rate of 1.6 percent, as consumers began gradually pulling back.

GDP was down sharply from the 3.4 percent annual rate in the last quarter of 2023, and is at its lowest reading in a year and half, according to data released this morning by the Bureau of Economic Analysis.

The latest deceleration reflects weakening household and government spending, and it came in below expectations. Exports also slowed at the beginning of the year, dragging down growth. GDP, the sum of all of the goods and services produced in the country, is the broadest measure of the economy.

“Growth is slowing, but clearly the economy is still on a solid path,” said Ben Ayers, senior economist at Nationwide, which recently scrapped its recession forecast for the year. “We’ve had very strong job growth that’s fueling higher incomes, giving people the money to go out and spend. But that’s also kept inflation high, so honestly a little bit of cooling is good news.”

Four years since after the pandemic recession, the U.S. economy has bounced back far stronger than anticipated. Unemployment, at 3.8 percent, is in the longest stretch of near-record low jobless rates since 1970. Wages are going up. And crucially, families, businesses and governments are continuing to spend freely, keeping money sloshing through the economy.

That exuberant spending — especially on travel, restaurants, concerts and other services — has recently lifted inflation, reigniting fears that the Federal Reserve may have to be even more aggressive in its efforts to slow the economy.

But the central bank has raised interest rates 11 times in the past two years, making it more expensive for families and businesses to borrow money. That’s put a chill on some parts of the economy, including home sales.

Ralph Rapa opened a brewery in Coconut Creek, Fla., two months ago, and says there’s been a steady stream of young families and other locals stopping in for $7 pints. Nights with special events have been particularly popular — he hosts karaoke on Wednesdays, live music Thursday through Sunday, and paint-and-sip events once a month.

“People might be anxious about inflation, but everybody seems to have money to drink and eat,” he said. “They want to get out — they want live music and family-friendly, dog-friendly places to hang out.”

Rapa, a railroad health and safety manager, came up with the idea for Rule G Brewing Co. three years ago when the pandemic was still in full swing. He has poured thousands into the business — a mix of personal and retirement funds, crowdfunding, investments and a grant from the Small Business Administration — and expects it will take a few years to become profitable. In the meantime Rapa says he’s hopeful his business — and the economy — will hold up.

“I don’t want to say this is a recession-proof industry because bars fail all the time,” he said. “But we’re in a good place right now. People are out and about, and they want to have a good time.”

Still, there is mounting evidence that Americans are pulling back. Many families have used up their pandemic savings and are taking on extra debt to keep up with costs. Credit card debt has risen 22 percent since the pandemic. Delinquencies on credit cards and car loans are also rising, especially among younger and lower-income Americans, as inflation and higher interest rates take a toll on household budgets.

“We’re a bit concerned about the U.S. consumer,” said Erik Lundh, principal economist at the Conference Board. “There’s been quite a surge in debt, and just making interest payments on that stuff is eating into peoples’ pocketbooks and their ability to spend and save.”

As a result, Lundh said consumer spending is poised to slow in the coming months, potentially denting economic growth. He expected GDP growth to slow to 0.5 percent in the middle of the year, before rebounding in the fall.

“We don’t think things are going to fall apart this year, but consumers are going to have to pause and do some hard thinking on how they’re spending their money,” he said.

In Bend, Ore., Kristi Coughlin and her family have started to rethink their spending, especially on food. Instead of going out to dinner three times a week like they used to, they’re eating more “hodgepodge meals” at home — enchiladas with tater tots, say, or leftover rotisserie chicken with chili.

“We’re buying less fresh stuff than we used to,” the 40-year-old registered dietitian said. “I don’t get a cart at the grocery store anymore. My new rule is: If I can’t carry it, I don’t buy it.”

Her household of three is also relying more on frozen fruits and vegetables, canned beans, and leftover meats. Coughlin, who has 17 chickens in her yard, has started trading eggs for a morning brew at her local coffee shop. In all, her family spends about $1,800 a month on groceries, considerably more than they did before the pandemic.

Other costs, such as medical bills and their older daughter’s college fees, have also gone up. Coughlin and her husband, an electrician, are both self-employed, making them particularly susceptible to the whims of the economy. They’re not struggling financially, at least not yet. “But we’re cutting back proactively,” she said, “just in case.”

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