WASHINGTON: The US economy expanded less than initially estimated in the first quarter, government data showed on Thursday (May 28), while a key inflation gauge separately hit a three-year high on fallout from the Middle East war.
The figures sound a warning on pressures that American households are facing ahead of midterm elections, as steeper gasoline prices squeeze budgets and a boost from tax refunds fades.
Gross domestic product in the world’s biggest economy rose at an annual rate of 1.6 per cent in the first three months this year, the Commerce Department said.
This was down from an earlier estimate of 2.0 per cent, with the pullback “primarily reflecting downward revisions to investment and consumer spending,” the department added.
“New data showed services spending, particularly on medical services, slowed and business inventories fell by more than previously estimated,” said economist Michael Pearce of Oxford Economics.
Downward revisions to consumer spending in the first quarter, alongside a slowdown in April, “point to a consumer coming under stress,” he added.
Pearce was referring to another report that showed the US Federal Reserve’s preferred inflation measure rising to its highest year-on-year rate since 2023.
The personal consumption expenditures (PCE) price index increased 3.8 per cent from a year ago, the Commerce Department said, up from 3.5 per cent in March.
US personal consumption expenditures rose by 0.5 per cent in April, but disposable personal income fell by 0.1 per cent.
“You can see how Americans are getting squeezed financially right now,” said Heather Long, chief economist at Navy Federal Credit Union.
Pearce expects that higher energy prices are likely to keep GDP growth “moderate this year.”
Energy costs have surged following US-Israeli strikes targeting Iran on Feb 28, engulfing the Middle East in conflict and triggering Tehran’s retaliation that has virtually blocked the Strait of Hormuz.
The key waterway normally sees about a fifth of the world’s oil and gas supplies pass through it, and is also essential for the global fertiliser trade.
Global costs have soared, with prices at American gasoline stations also spiking – piling pressure on consumers ahead of elections at the end of the year.
Rising fuel prices saw US consumers spend US$28.8 billion more on gasoline and related products in April over the same month a year ago, the data showed.
Discover more from PressNewsAgency
Subscribe to get the latest posts sent to your email.