Higher interest rates failed to curb robust consumer spending as the U.S. economy grew for the third consecutive quarter in Q1.
According to the Commerce Department, the U.S. economy grew at a slower pace of 1.1% in the first quarter of 2023. The figures indicate a decline from the 2.6% growth in the last quarter of 2022, and the economy has managed to grow for three consecutive quarters after contracting in the first half of 2022.
However, the growth rate in Q1 was impacted by sluggish housing and business investment due to higher interest rates. The Federal Reserve has hiked rates by almost five percentage points since early 2022 to control inflation.
Despite higher borrowing costs and rising prices, consumers continued to spend. Inflation-adjusted consumer spending rose 3.7% in Q1, up from 1% in the prior period. The rebound was driven by spending on services such as travel and restaurant meals, while spending on goods rose, reversing a four-quarter decline.
The preliminary figures will be revised twice as more complete data becomes available. The report suggests that although higher interest rates impact the U.S. economy, the robust consumer spending has kept the possibility of a recession at bay for now.