Imports Hold Back U.S. Economy in First Quarter, Inflation Flares Up

• The U.S. economy grew at its slowest pace in nearly two years in the first quarter amid a surge in imports and a small build-up of unsold goods at businesses, signs of solid demand that, together with an acceleration in inflation, reinforced expectations the Federal Reserve would not cut interest rates before September.
• The cooler-than-expected growth reported by the Commerce Department in its snapshot of first-quarter gross domestic product on Thursday, which also reflected a downshift in government spending, exaggerated the moderation in economic activity. Domestic demand, a better growth measure, was strong as consumer spending moderated slightly while business investment picked up and the housing recovery gained steam.
• Economists polled by Reuters had forecast GDP would rise at a 2.4% rate, with estimates ranging from a 1.0% pace to a 3.1% rate. However, the actual GDP reading increased at a 1.6% annualized rate last quarter, the slowest pace since the second quarter of 2022, the Commerce Department's Bureau of Economic Analysis said.
• The first-quarter growth pace was below what U.S. central bank officials regard as the non-inflationary growth rate of 1.8%. Excluding inventories, government spending and trade, the economy grew at a 3.1% rate after expanding at a 3.3% rate in the fourth quarter. That also dispels the notion that government spending was fueling the economy.
• A significant slowdown in the labour market is not yet evident. The Labour Department's weekly jobless claims report showed initial claims for unemployment benefits fell 5,000 to a seasonally adjusted 207,000 in the week ending April 20.

(Source: Reuters)