The US economy started 2023 with its slowest pace of expansion since the second quarter of 2022, marking a significant slowdown from the rapid recovery seen in 2023. Despite this slower growth, the overall economic outlook remains positive, especially considering the Federal Reserve’s efforts to curb inflation that had led to a technical recession two years ago.
Investors reacted negatively to the lower-than-expected GDP growth, with S&P 500 futures dropping more than 0.7% and earnings also impacting equity prices. Real GDP growth is an important indicator as it accounts for inflation and currency exchange differences. In contrast, nominal GDP only considers the dollar value of output. The U.S. economy’s steady growth is surprising given the concerns of minimal growth just a year ago when the Federal Reserve raised interest rates to combat inflation.
Higher interest rates typically lead to economic downturns by making borrowing more expensive for consumers and businesses. However, in this case, the Federal Reserve’s efforts to curb inflation have been successful in keeping inflation low, despite concerns that it might lead to a recession. Despite this slower growth rate, investors remain optimistic about the US economy’s future prospects and are eagerly waiting for new data on GDP growth in subsequent quarters.
The U.S.’s steady economic growth is particularly remarkable given its position as the largest global economy with a nominal GDP of $28.3 trillion in the first quarter of 2023.
Overall, while investors may be concerned about lower-than-expected GDP growth in Q1 2023, they remain optimistic about the long-term prospects of the US economy due to its continued resilience and strong position as a global leader in various sectors such as technology and finance.