WASHINGTON — The U.S. economy saw a slowdown in growth during the first quarter of this year, accompanied by unexpected inflation, according to National Retail Federation Chief Economist Jack Kleinhenz. Despite this, consumer spending remained robust, driven by a strong job market and continued expenditure by both consumers and businesses.

Gross domestic product (GDP) grew only 1.6% in the first quarter, down from 3.4% in the previous quarter, marking the slowest growth since last year. Inflation, particularly in service prices, increased to 3.4% year-over-year, contributing to ongoing cost pressures.

Consumer spending, although slightly lower than in the previous quarter, still grew by 2.5% year over year, with total retail sales surpassing expectations in March. The labor market remained strong, with solid job growth and rising wages, although job openings decreased, indicating a potential easing of wage pressure.

Although wage gains have bolstered workers’ spending power, this is unwelcome news for Fed officials trying to contain inflationary pressures. Citing continued high inflation, the Fed left interest rates unchanged last week, which was expected, but a rate reduction that might have come in June is now likely to be postponed.

“The U.S. economy lost some spring in its step during the first quarter as the pace of growth declined, and the downshift came with an unexpected bout of inflation,” Kleinhenz said, noting that prices for services are still increasing even as prices for goods level off. “But even with signs that the economic expansion is decelerating, the economy remains resilient, boosted by a solid job market and continued spending by consumers and businesses.”

“With the labor market still rebalancing, economic growth still steady and financial conditions easy, we expect the Fed will likely push out the decision on easing of interest rates for some time yet,” Kleinhenz added.

Kleinhenz’s comments came in the May issue of NRF’s Monthly Economic Review.

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