Declining consumer spending dampened US GDP growth in first quarter

US consumer spending in the first quarter grew at its slowest pace since the start of the pandemic. According to the Bureau of Economic Analysis, the figure rose just 0.5%, well below the initial estimate of 1.2%. As a result, GDP declined at a downwardly revised 0.5% annualized rate.

The decline was primarily driven by a sharp drop in spending on services, which contributed just 0.3 percentage points, down from 0.79 points previously. Expenditures on entertainment and travel, which are especially sensitive to shifts in consumer sentiment, saw the biggest cuts. As Oxford Economics economist Ryan Sweet points out, the slowdown in these sectors has continued into the second quarter. This, in turn, could drag down economic growth for the entire year.

Spending across all seven major service categories was revised lower, including transportation and foreign travel. The biggest drop came from recreation services, which fell 0.14 percentage points instead of the anticipated 0.04-point increase. Bloomberg reports that such numbers suggest weakening domestic demand.