US Q1 GDP Growth: The US economy grew last quarter at the slowest pace in two years as consumer and government spending cooled amid a sharp pickup in inflation. The US gross domestic product (GDP) increased at a 1.6 per cent annualized rate in January-March 2024, missing Wall Street expectations of a larger 2.4 per cent rise seen in the quarter-under-review.
The growth was also a clear slowdown from the 3.4 per cent increase in the final three months of last year, and the weakest growth rate since mid-2022. The world's biggest economy's main growth engine — personal spending — rose at a slower-than-forecast 2.5 per cent pace. The figures represent a significant loss of momentum at the start of 2024 after the economy wrapped up a strong year.
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The slowing in growth "primarily reflected decelerations in consumer spending, exports, and state and local government spending," said the US Commerce Department's Bureau of Economic Analysis report. There was also a "downturn in federal government spending," said the Commerce Department. Spending on goods decreased for the first time in more than a year, capped by motor vehicles and gasoline.
The first-quarter pickup in inflation was driven by a 5.1 per cent jump in service-sector inflation that excludes housing and energy, nearly double the previous quarter’s pace. The report showed outlays for services rose by the most since the third quarter of 2021, fueled by health care and financial services.
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The government spending and trade, inflation-adjusted final sales to private domestic purchasers — a key gauge of underlying demand — rose at a 3.1 per cent rate. Residential investment jumped at a nearly 14 per cent annual rate, the fastest since the end of 2020 and underscoring efforts to boost inventory.
Federal government spending subtracted from GDP for the first time in two years. Business inventories dragged for a second straight quarter. The GDP estimate released today is subject to further revision. The second estimate for the first quarter, based on more complete source data, will be released on May 30, 2024.
With the inflation pickup, US Federal Reserve policymakers — who were already expected to hold interest rates at a two-decade high when they meet next week — may face renewed pressure to further delay any cuts and even to consider whether borrowing costs are high enough.
Traders will parse Chair Jerome Powell’s comments for clues about the latest thinking around easing policy. Powell previously said that growth can run at a faster rate without stoking inflation thanks to supply-side improvements like immigration, which is boosting the size of the workforce.
Separate data out Thursday showed initial applications for unemployment benefits fell to 207,000 last week, the lowest level in two months. Continuing claims also decreased. Consumption has been more resilient than anticipated last year, even as economists predicted that spending would cool as households depleted their savings from the pandemic period and while borrowing costs stayed high.
A key factor has been a robust labor market, fueling job and wage gains. This has boosted optimism that the country is achieving a "soft landing" where inflation moves lower on the back of higher interest rates without triggering a recession.
With inputs from Bloomberg, AFP
