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Shoppers are playing a large part in the continued growth of the U.S. economy


The U.S. economy continues to grow, although not as quickly as forecasters had expected. A report from the government this morning shows the economy grew at a slower pace in the first three months of the year than in the final quarter of 2023. Some of the slowdown reflects a dip in government spending. NPR's Scott Horsley joins us now. Hi, Scott.


FADEL: So the economy continues to grow. Why?

HORSLEY: Well, the big driver, as always, is consumer spending. Americans spent more money on services in the first three months of the year, even though they spent a little bit less money on goods. I spoke to Mark Zandi, who's chief economist at Moody's Analytics. He says Americans have continued to spend despite today's high interest rates.

MARK ZANDI: The consumer is leading the charge here. They're powering the economy forward. And it seems like everyone is out there spending not with abandon, but it feels like consumers feel pretty good.

HORSLEY: People are still spending a lot on restaurant meals and travel. Services spending overall rose at an annual rate of 4% in the first three months of the year. We also saw a slowdown in exports and an uptick in imports, and that wider trade deficit shaved almost a full percentage point off the GDP growth rate, which came in at 1.6% for the first quarter. As you mentioned, state and local government spending grew more slowly during the quarter and federal spending actually dipped a little bit.

FADEL: Is some of this slowdown the result of those higher interest rates?

HORSLEY: It looks as though higher rates are having an effect. Spending on big-ticket items like cars and furniture was down during the first quarter, and those big-ticket items are often financed. Higher interest rates are also weighing on the housing market. Sales of existing homes have been quite weak as mortgage rates are now topping 7%.

But, you know, a lot of people who already own homes locked in very low mortgage rates a couple of years ago, so they're partly insulated from those higher borrowing costs. And we're also seeing a good bit of new home construction. Residential investment jumped at an annual rate of nearly 14% during the first quarter. New homes are in high demand because there's so few existing homes on the market. Business investment is also holding up pretty well, especially when it comes to things like software and artificial intelligence.

FADEL: Today's GDP report tells us what happened with the economy in January, February, March. What do we know about what's ahead?

HORSLEY: Most forecasters expect to see a gradual cooling in economic growth, but you're not hearing the kind of dire warnings about an imminent recession that we were hearing last year. Back then, a lot of forecasters thought these high interest rates would bring a halt to economic growth and put people out of work. Instead, the unemployment rate has held under 4% for more than two full years now. A lot of people are working. Their wages are climbing. We've also been helped by an influx of new workers, both people coming off the sidelines and immigrants coming into the country. Supply chains continue to come untangled. All that's helping to bring inflation down. Although, Zandi says there are still some potential bumps in the road.

ZANDI: I don't think we can declare victory, the economy has soft landed until inflation is at a point where the Federal Reserve feels comfortable to start cutting interest rates.

HORSLEY: Not so long ago, markets thought the Fed might start cutting interest rates in June. Now investors think it might be September or even later. Today's weaker than expected GDP number could give the Fed more leeway to lower interest rates a little bit sooner than that, perhaps in July. But we'll have to see.

FADEL: NPR's Scott Horsley. Thank you, Scott.

HORSLEY: You're welcome.


NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.

Leila Fadel is a national correspondent for NPR based in Los Angeles, covering issues of culture, diversity, and race.
Scott Horsley is NPR's Chief Economics Correspondent. He reports on ups and downs in the national economy as well as fault lines between booming and busting communities.