U.S. economy still 'very, very strong,' despite likely drop in GDP growth-official

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By Andrea Shalal

WASHINGTON (Reuters) -U.S. data due out Thursday is expected to show slower economic growth in the first quarter, mainly due to a less robust jump in business inventories, but the overall economy remains strong, a senior Biden administration official told Reuters on Wednesday.

The Commerce Department's advance reading of first-quarter gross domestic product, due out at 8:30 a.m. ET (1230 GMT), should not be interpreted as a sign that the economy is headed in a bad direction, the official said.

"Businesses continue to add to their inventory, it's just that they didn't do as fast as they did in the previous quarter," the official said. "If you get under the hood of the GDP number tomorrow I think you're likely to see that economic conditions are still very, very strong."

Economists polled by Reuters expect growth to have slowed to an annualized rate of 1.1% in the first three months of 2022 from a 6.9% rate in the fourth quarter of 2021.

That growth rate would be the slowest since the recession triggered by the COVID-19 pandemic, reflecting a new wave of COVID-19 cases and a surge in imports, economists say.

While growth was expected to slow "quite a bit" in the first quarter, other elements pointed to continued strength in the economy, the official told Reuters, citing very strong household balance sheets, household consumption and business investment.

Other data, including a 3.6% unemployment rate, strong continued job growth and the level of debt relative to household income, also pointed to continued strength in the economy, the official added.

"If you look at the amount of debt that households have relative to their income, it's never been this strong in the last 30 years," the official said.

Russia's war in Ukraine was expected to have only a muted effect on the first quarter data, given the fairly limited exposure of the U.S. economy to Russia, although its impact on energy prices would be quite noticeable, the official said.

U.S. officials were carefully monitoring the impact of the war on Europe, which are far more reliant on Russian energy and are facing sharper slowdowns in growth as a result of the war, the official said.

Friday's Personal Consumption Expenditures Price Index data for March is expected to show "quite elevated" headline inflation, but so-called core inflation is likely to have flatlined or even be a bit lower, the official said.

Economists polled by Reuters estimate that growth in core PCE, excluding food and energy, decelerated a touch to a 5.3% annual increase from 5.4% in February, which was the highest since the early 1980s. That would mark the first slowdown in core PCE growth, on an year-over-year basis, since October 2020.