The US economy grew at a rate of 1.1% in the first quarter

High interest rates weighed on the US economy in early 2023, but free-spending consumers are keeping the recession at bay, at least for now.

Gross domestic product, adjusted for inflation, rose at an annual rate of 1.1 percent in the first quarter said the Ministry of Commerce Thursday. This was down from the 2.6 percent rate in the final three months of 2022, but nonetheless marked the third consecutive quarter of growth after output contracted in the first half of last year.

The numbers are preliminary and will be revised at least twice as more complete data becomes available.

Growth in the first quarter was affected by weakness in housing and business investment, both of which are highly sensitive to interest rates. The Federal Reserve has raised interest rates by about five percentage points since early last year in an effort to curb inflation.

However, consumers have proven resilient in the face of rising prices and higher borrowing costs. Inflation-adjusted spending rose at an annual rate of 3.7 percent in the first quarter, from 1 percent in the previous period. Consumers benefited from a stronger labor market and higher wages, which helped offset higher prices.

Spending slowed as the quarter progressed, however, and forecasters warn it could weaken further amid headlines about layoffs, bank failures and warnings of a possible recession.

“Consumer spending is still picking up, but I don’t know how long it can last,” said Ben Hirson, economist at S&P Global Market Intelligence. Confidence is weak and waning. You have to wonder, will that soon turn into a downturn in spending? “

The gradual deceleration would be welcomed by Federal Reserve policymakers, who have been trying to cool the economy enough to bring down inflation, but not so much that it leads to widespread layoffs and unemployment.

“It’s not a free fall,” said Dana Peterson, chief economist for the Conference Board, a business group. “It’s a controlled landing, and that’s what the Fed is trying to achieve with higher interest rates.”