WASHINGTON (Reuters) – The U.S. Department of Commerce announced on the 25th that preliminary figures for gross domestic product (GDP) for the first quarter of 2024 were an annualized 1.6% increase from the previous quarter. Growth slowed significantly from the 3.4% increase in the previous quarter, and was the slowest in nearly two years.
Although personal consumption remains strong, growth has slowed. In addition, the trade deficit widened due to the rapid increase in imports, putting downward pressure on growth. It also showed that inflation was accelerating, increasing expectations that the US Federal Reserve would not cut interest rates before September.
Growth fell short of market expectations of 2.4% growth and also below the 1.8% rate the Fed considers to be non-inflationary.
A slowdown in the pace of corporate inventory additions and a decline in government spending also put pressure on growth.
“It sends contradictory messages,” said Olu Sonora, Fitch’s head of economic research. “If growth continues to moderately slow and inflation spikes again in the wrong direction, the Fed will cut rates by the end of the year. “That possibility is becoming more and more remote.”
The core personal consumption expenditures (PCE) index, which excludes food and energy and is closely watched by the Federal Reserve as a measure of prices, rose 3.7%, accelerating from a 2.0% rise in the previous quarter.
The rise in the cost of services such as transportation, insurance and housing offset the decline in prices of goods such as cars and parts.
“While the Fed will likely see this round of GDP growth as solid, the unexpected rise in inflation supports the Fed’s argument that it should wait a little longer before cutting rates,” said UniCredit’s Daniel Vernazza.
Personal consumption, which accounts for more than two-thirds of U.S. economic activity, increased by 2.5%. However, the growth slowed from the 3.3% increase in the previous quarter. Spending on health care, financial services and insurance led overall growth. On the other hand, spending on goods, including cars and gasoline, decreased.
Disposable income, which takes taxes and inflation into account, rose 1.1%, slowing from the previous quarter’s 2.0% rise. Reflecting the withdrawal of savings, the savings rate fell from 4.0% to 3.6%.
“The recent strength in inflation could weigh on real disposable income, posing downside risks to the near-term consumption outlook,” said Ryan Sweet, chief economist at Oxford Economics.
Corporate inventories increased by $35.4 billion. However, the pace of addition slowed from the previous quarter’s increase of $54.9 billion, pushing down the growth rate by 0.35 percentage points.
The trade deficit widened to $973.2 billion from $918.5 billion in the previous quarter. GDP growth was pushed down by 0.86 percentage points.
Government spending rose 1.2%, a sharp slowdown from the 4.6% increase in the previous quarter. This was in response to a decline in federal government spending, particularly in defense spending.
Excluding inventories, government spending and trade, the growth rate was 3.1%. In the previous quarter, it was 3.3%.
Housing investment recorded the largest increase since the fourth quarter of 2020. This was due to an increase in home sales and construction despite rising mortgage interest rates.
Our Code of Conduct: Thomson Reuters “Principles of Trust” New Tab opens new tab
Tags: GDP slows #1st quarter slowest growth years inflation accelerates Reuters
-
