A Sluggish Economy Slowed Further: “Troubling” Q1 2023 GDP Data

By SBE Council at 27 April, 2023, 1:04 pm

by Raymond J. Keating –

An already-underperforming economy slowed even further in the first quarter of 2023, according to the latest GDP report from the U.S. Bureau of Economic Analysis.

Real GDP growth measured a meager 1.1 percent in the first quarter (on a seasonally adjust annual rate).

Growth has declined from 3.2 percent in the third quarter of 2022 to 2.6 percent in the fourth quarter, and now 1.1 percent in the first quarter of 2023.

Keep in mind that these rates came after the economy contracted in the first two quarters of 2022 (-1.6 percent in 2022 Q1 and -0.6 percent in 2022 Q2).

Source: Federal Reserve Bank of St. Louis, FRED

So, since the start of 2022, real GDP growth has averaged a woeful 0.9 percent. Combine that with hot inflation, and we’ve been firmly entrenched in an ugly period of stagflation.

Regarding the first quarter 2023 data, real personal consumption expenditure growth was strong (+3.7 percent). However, investment was weak overall, with real nonresidential (business) investment growing at only 0.7 percent. Structures investment came in strong (+11.2 percent), equipment investment declined markedly (-7.3 percent), and intellectual property products investment slowed (coming in at 3.8 percent, which was the weakest since the second quarter of 2020).

Trade shifted in a positive direction, with both exports and imports growing after declines in the fourth quarter of last year.

Finally, another troubling aspect of this GDP report was that government investment and consumption contributed such a large chunk of growth in the first quarter. That is, 0.81 percentage points of the 1.1 percent increase in GDP was attributed to government. Unfortunately, that means that private sector real GDP barely inched forward at all in the first quarter of 2023. Of course, real, substantive economic growth comes from the private sector, not from government’s politically-driven undertakings.

In the end, coming out of a pandemic and related shutdowns, the U.S. economy should be experiencing an extended period of strong growth. But that simply hasn’t been the case after an initial snapback. Among the key problems has been public policy, including a Federal Reserve bent on slowing the economy, and a White House and Congress either pushing policy in an anti-growth direction or, at best, only one side of Capitol Hill showing interest in seriously advancing pro-growth tax, regulatory, and trade policies that reduce costs and expand opportunities for entrepreneurs, businesses and workers.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His latest book is The Weekly Economist: 52 Quick Reads to Help You Think Like an Economist.