U.S. economic growth experienced a more significant slowdown than anticipated in the first quarter, with preliminary data from the Commerce Department revealing a 1.1% increase in the real gross domestic product. This figure contrasts with the 2.6% growth in the last quarter of 2022 and the predicted 2.0% increase.
Government Debt Under Pressure, Yield Rates Climb
Following the data release, U.S. government debt felt the pressure, with the United States 2-Year yield rising by 0.12 percentage points to 4.0476% and the United States 10-Year yield increasing by 0.07 percentage points to 3.509%. Prices typically move inversely to yields.
Factors Contributing to the Slowdown
The deceleration in the first quarter compared to the fourth quarter was primarily due to a downturn in private inventories and nonresidential fixed investment. However, an increase in consumer spending partially offset these trends, as noted by the Commerce Department.
Business Sector's Impact on Growth
Analysts at ING highlighted that the business sector held back the overall growth, as the investment story appeared much weaker than anticipated.
Federal Reserve's Response to Inflation
The Federal Reserve has aggressively increased interest rates over the past year to counter rising inflation. The Fed is expected to raise borrowing costs by another 25 basis points next week, potentially leading to a pause in the tightening cycle to evaluate the impact of recent financial services sector turmoil.
First Republic's Struggles Indicate Banking Concerns
First Republic's sharp drop in shares and the reported $100 billion in customer withdrawals in March have raised concerns that the banking sector's turmoil may not yet be over.
Unemployment Benefits Drop, Signaling Labor Market Tightness
Contrary to expectations, the number of Americans filing for initial unemployment benefits fell to 230,000, possibly indicating a persistent tightness in the U.S. labor market. The Federal Reserve's rate increases aim to soften job market demand, which could help alleviate overall inflationary pressures. The four-week moving average decreased by 4,000 to 236,000, while continuing claims dipped to 1,858,000, remaining near their highest level since 2021.
