The U.S. economy grew slower than expected in the first three months of 2024.
It expanded at an annual rate of 1.6 %, well below the 3.4% rate logged in the previous quarter and flagged as the slowest pace of growth since the first half of 2022, according to the latest Gross Domestic Product (GDP) data from the Commerce Department’s Bureau of Economic Analysis.
The “advance” estimates show that compared to the previous quarter, the slowdown in Q1 primarily reflected decelerations in consumer spending, exports, and state, local, and federal government spending. An increase in imports and residential fixed investment partly offset the slowdown during the quarter.
The Personal Consumption Expenditures (PCE) price index, which tracks the amount consumers are spending on goods and services, increased by 3.4% in Q1 after rising by 1.8% in the previous quarter. Excluding food and energy, the PCE “core” price index rose 3.7% in the first three months of 2024, up from 2.0% in Q4, 2023.
“Softer-than-expected Q1 GDP growth but stronger-than-expected inflation presents an uncomfortable backdrop for Fed officials considering when to cut rates this year,” said Citi economists in a research note reported on by Reuters.
After cooling from a peak of 9.1%, inflation has since ticked back up, climbing from a low of 3.0% in June 2023 to an annualized 3.5% in March 2024. Even though the U.S. Central Bank has held its benchmark interest rate steady since July 2023, Fed policymakers are no closer to reaching their 2.0% inflation target than they were nearly a year ago.
Federal Reserve Chair Jerome Powell shared this sentiment during a recent policy forum in Washington.
“The recent data have clearly not given us greater confidence and instead indicate that it’s likely to take longer than expected to achieve that confidence,” said Powell. “Right now, given the strength of the labor market and progress on inflation so far, it’s appropriate to allow restrictive policy further time to work and let the data and the evolving outlook guide us.”
Despite mixed data in the first quarter, Oxford Economics chief U.S. economist Ryan Sweet suggested Thursday’s GDP report will have little impact on the Fed’s upcoming policy decisions.
“The deceleration in GDP growth will not worry the Fed as the details are better than the headline would suggest,” said Sweet, per Yahoo Finance.
After the report was released, Treasury Secretary Janet Yellen claimed the U.S. economy was “firing on all cylinders” and predicted additional growth throughout the year. “What’s really important is private final domestic purchases or consumer spending and investment, and they grew solidly,” Yellen told Reuters.
She added that there is still “considerable strength” in the underlying core drivers of economic activity, and she thinks that the U.S. economy will continue to perform “very, very well.”
However, EY chief economist Gregory Daco claimed Thursday’s report “pours cold water on the misleading narratives of a reaccelerating economy.”
“As we enter the spring, the underlying growth mix continues to signal robust momentum, but demand growth is gently cooling, leading to easing inflationary pressures,” Daco wrote in a research note, reported Yahoo Finance.