The overall economy grew at a 1.1% pace as the acceleration
in consumer spending was offset by businesses liquidating
inventories in anticipation of weaker demand later this year.
The economy expanded at a 2.6% rate in the fourth quarter.
Last month's flat reading in consumer spending set
consumption on a lower growth path in the second quarter. It
likely reflected Americans becoming more averse to higher prices
as well as the expiration of a temporary boost to the
Supplemental Nutrition Assistance Program (SNAP) benefits
authorized by the U.S. Congress to cushion low-income people and
families against the hardships of the COVID-19 pandemic.
SNAP is commonly known as food stamps. Researchers from the
Commerce Department's Census Bureau on Thursday estimated the
end of the extra benefits had resulted in roughly 32 million
people getting smaller monthly SNAP payments. They estimated
that a household of four with a net monthly income of $2,000 was
now getting $600 less in food stamps each month.
The economy is facing several headwinds, including higher interest rates as the Fed fights inflation, and tightening credit conditions, which could crimp both consumer and business spending. A standoff to raise the federal government's $31.4 trillion borrowing cap also poses a threat.
The Fed is expected to increase interest rates by another 25 basis points next week, potentially the last hike in the U.S. central bank's fastest monetary policy tightening cycle since the 1980s. The Fed has raised its policy rate by 475 basis points since March of last year from the near-zero level to the current 4.75%-5.00% range. Though inflation remains elevated, it is gradually slowing. The personal consumption expenditures (PCE) price index gained 0.1% in March after rising 0.3% in February. In the 12 months through March, the PCE price index increased 4.2% after climbing 5.1% in February. Excluding the volatile food and energy components, the PCE price index rose 0.3% after increasing 0.3% in February. The so-called core PCE price index gained 4.6% on a year-on-year basis in March after rising 4.7% in February. The Fed tracks the PCE price indexes for its 2% inflation target. (Reporting by Lucia Mutikani; Editing by Chizu Nomiyama)
