WASHINGTON - The U.S. economy grew at its slowest pace in nearly two years in the first quarter amid a surge in imports and small build-up of unsold goods at businesses, signs of solid demand that together with an acceleration in inflation reinforced expectations the Federal Reserve would not cut interest rates before September.
GDP increased at a 1.6% annualized rate last quarter, the slowest pace since the second quarter of 2022, the Commerce Department's Bureau of Economic Analysis said. Economists polled by Reuters had forecast GDP would rise at a 2.4% rate, with estimates ranging from a 1.0% pace to a 3.1% rate. U.S. Treasury Secretary Janet Yellen told Reuters in an interview that she was focused on consumer and business spending.
The so-called core PCE price index is one of the inflation measures tracked by the Fed for its 2% target. Inflation was boosted by increases in the costs of services like, transportation, insurance and housing, which offset a decline in goods prices such as motor vehicles and parts. Continuing claims fell between the March and April survey periods, implying the unemployment rate was likely unchanged after dipping to 3.8% last month from 3.9% in February.
Inventories were whittled down, rising at a $35.4 billion rate after increasing at a $54.9 billion pace in the fourth quarter. Inventories subtracted 0.35 percentage point from GDP growth. Part of the spending was satiated with imports, which resulted in the trade deficit widening to $973.2 billion from $918.5 billion in the October-December quarter. Trade chopped off 0.86 percentage point from GDP growth.