U.S. GDP growth cools to 1.6% in first quarter, falling short of expectations

51

25th April 2024 – (Washington) The U.S.’s gross domestic product (GDP) increased at a slower-than-anticipated rate of 1.6% on an annualised basis in the first quarter of 2024, falling short of the 2.4% experts had predicted. This marks a considerable deceleration from the 3.4% expansion observed in the final quarter of 2023, according to the latest data from the Commerce Department.

The report, which also highlighted a significant uptick in inflation pressures, has stirred concerns among investors and policymakers. Notably, the personal consumption expenditures (PCE) price index, closely monitored by the Federal Reserve for inflation signals, escalated to a 3.4% annualised rate, recording its most substantial rise within a year.

Consumer spending, a critical engine of economic growth, increased by 2.5% during the quarter. However, this was down from the 3.3% growth seen in the previous quarter and below the 3% growth anticipated by analysts. This slowdown in consumer demand is particularly troubling as it suggests a weakening in one of the economy’s key support pillars.

The GDP data paints a complex picture of the U.S. economy, where increased government and state-level spending have somewhat offset the drag caused by declining private inventory investments and a rise in imports. Furthermore, the report indicated a notable impact from net exports, which detracted 0.86 percentage points from the overall growth rate.

On the inflation front, the core PCE price index, which excludes volatile food and energy prices, rose at a concerning 3.7% rate, significantly above the Federal Reserve’s target of 2%. This sharp rise in core inflation is likely to influence the Federal Reserve’s monetary policy decisions, potentially leading to a more hawkish stance in the upcoming meetings.

The news has had an immediate effect on financial markets, with futures linked to major indices showing substantial declines and Treasury yields climbing, reflecting increased investor anxiety about the trajectory of interest rates and economic stability moving forward.