US economy grows 1.6% in first quarter, recovering from federal shutdown, government says, downgrading first estimate

WASHINGTON (AP) — U.S. economic growth slowed slightly in the first quarter, with real GDP rising at a 1.6 percent annual rate. The increase was driven by steady consumer spending and solid business investment, though weaker government spending and a drag from trade held back gains. The pace came in below some expectations, signaling stable—but not overheating—activity. That could ease pressure on the Federal Reserve to raise interest rates sharply, leaving markets watching closely for what comes next.

Elswhere, a key inflation gauge accelerated in April to the highest level in three years, the latest sign that spiking gas prices and higher food costs are squeezing Americans’ finances. Inflation jumped to 3.8% in April compared with a year ago, the Commerce Department said Thursday, up from 3.5% in March and the highest since May 2023. On a monthly basis, prices rose 0.4%, down from the 0.7% rise in March. The report showed that prices have risen for many items in addition to gas, a sign inflation could persist and pose problems for congressional Republicans in this year’s midterm elections. 

Meantime, more Americans sought unemployment benefits last week, but layoffs remain low despite economic uncertainty caused by the Iran war. The Labor Department reported Thursday that jobless claims were up to 215,000, up from 210,000 the week before. The four-week moving average of claims, which smooths out week-to-week volatility, rose by nearly 6,300 to 209,000. The number of Americans signing up for unemployment benefits — a proxy for layoffs — has stabilized in a low range of mostly 200,000 to 250,000 a week since the U.S. economy emerged from a brief but nasty pandemic recession in 2020.