U.S. GDP in first quarter racheted up to 1.3% from 1.1%

By Jeffry Bartash

Economy has slowed due to higher interest rates

The numbers: The U.S. grew at a somewhat faster but still tepid 1.3% annual pace in the first quarter, updated figures show, as high inflation and rising interest rates weighed on the economy.

Initially the government said gross domestic product had expanded at a 1.1% rate. GPD is the official scorecard of sorts for the U.S. economy.

Adjusted pretax corporate profits, meanwhile, fell a sharp 5.1% in the first quarter and declined for the third quarter in a row. The last time that happened was in 2015.

Read:The U.S. economy might still be too strong for its own good

Key details: Most of the growth in the first quarter was spearheaded by consumer spending, the main engine of the economy. Outlays rose at a strong 3.8% clip vs. an initial 3.7% reading.

The chief source of the increase in GDP was an upward revision in inventories. The growth in inventories, or unsold goods, shrank by a revised $129.6 billion instead of an originally reported $138 billion.

That's still the slowest increase in two years, however.

What dragged GDP down in the first quarter was a decline in business investment, especially in housing and goods-producing sectors whose sales have been depressed by higher interest rates.

Americans have shifted more of their spending toward services such as travel and recreation and are buying relatively fewer goods like appliances and furniture.

The decline in in business investment stems in part from the shift in consumer spending. Higher material prices and worries about a recession have also played a role.

Inflation rose at an annual 4.2% pace in the first quarter, compared to a 3.7% increase in the 2022 fourth quarter.

Most other figures in the report were little changed.

GDP is updated twice after the initial results are published to incorporate new information not immediately available. One more update is due next month.

Big picture: The economy got off to a slower start in 2023, but it's still growing and there's little sign of a pending recession.

Still, most economists think a mild recession is likely in the next 12 months due to higher borrowing costs and tighter lending standards in the wake of several high-profile bank failures.

Market Reaction: The Dow Jones Industrial Average and S&P 500 were set to open mixed in Thursday trades

-Jeffry Bartash

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

05-25-23 0905ET

Copyright (c) 2023 Dow Jones & Company, Inc.