US economic growth slows as firms cut investment

The US economy slowed in the first three months of the year, as businesses reduced investments in the face of higher borrowing costs.

The economy grew 1.1% on an annualised basis, the Commerce Department said.

That was down from a rate of 2.6% in the prior quarter, despite strong consumer spending.

Analysts are watching nervously to see how the world’s largest economy handles a mix of higher interest rates and rising prices.

The latest report on gross domestic product – the widest measure of economic activity – showed the economy has now grown for three quarters in a row.

The US economy had contracted in the first half of last year as trade flows adjusted from the pandemic and higher borrowing costs led to a sharp slowdown in home sales.

But a strong job market has kept consumer spending – the main driver of economic activity – resilient, despite rising living costs, helping to defy predictions of a recession.

Spending was up 3.7% on an annual basis in the January-to-March period.

However, many forecasters still expect the US to fall into economic recession sometime this year.

“Overall, the data confirm the message from other indicators that while economic growth is slowing, it isn’t yet collapsing,” said Andrew Hunter, deputy chief US economist for Capital Economics.

“Nevertheless, with most leading indicators of recession still flashing red and the drag from tighter credit conditions still to feed through, we expect a more marked weakening soon.”