The US economy started the year much slower than expected
Allen J. Schaben / Los Angeles Times via Getty Images
- US real GDP rose at an annualized rate of 1.6% in the first quarter.
- That's far below the 3.4% increase in last year's fourth quarter.
- While a slowdown was expected for the first quarter, the forecast was 2.5%.
Amid US job growth above forecasts and accelerating inflation, the US economy in the first quarter of this year slowed more than expected.
A news release from the Bureau of Economic Analysis out Thursday showed US real gross domestic product rose at an annualized rate of 1.6%. That's less than the forecast of 2.5%.
"Despite the expected GDP slowdown in 2024, there are no imminent signs of a recession, showcasing the economy's continued resilience," Stephen Rich, chairman and CEO of Mutual of America Capital Management, said in written commentary.
The advance estimate for the first quarter shows real GDP had continued to slow: Real GDP rose at an annualized rate of 4.9% in the third quarter of 2023 before rising at a cooler annualized rate of 3.4% in the fourth quarter.
"Compared to the fourth quarter, the deceleration in real GDP in the first quarter primarily reflected decelerations in consumer spending, exports, and state and local government spending and a downturn in federal government spending," the news release published on Thursday stated.
"The increase in real GDP primarily reflected increases in consumer spending, residential fixed investment, nonresidential fixed investment, and state and local government spending that were partly offset by a decrease in private inventory investment," the news release said. "Imports, which are a subtraction in the calculation of GDP, increased."
Plus, motor vehicles and parts saw a hefty decline, while clothing and footwear saw an increase.
"Overall, US economic activity remains resilient, powered by consumers' ongoing ability and willingness to spend, even if they are being more scrutinous in the face of high prices," Gregory Daco, the chief economist for EY, said in written commentary ahead of the latest GDP reading. "A robust labor market along with positive real wage growth continues to provide a solid foundation to consumer outlays. Meanwhile, businesses are focusing on high return-on-investment projects and productivity-enhancing investments in an elevated cost and interest rate environment."
The labor market has seen job openings cool but also has experienced strong monthly nonfarm payroll growth. The labor market is more Goldilocks-like where it's not super hot but also not super cold.
Plus, inflation has been heating up; March's year-over-year percent change in the consumer price index was higher than the forecast. That change was 3.5%, greater than the 3.4% forecast or the previous 3.2% rise in February.
The report from the Bureau of Economic Analysis on Thursday shows that inflation is coming in hot again based on the personal consumption expenditures price index. Per the new report, this index rose 3.4% in the first quarter. That comes after a 1.8% increase in the fourth quarter of last year, which was cooler than the third quarter's 2.6%.
Olu Sonola, head of US economic research for Fitch Ratings, said in a statement that the "hot inflation print is the real story in this report."
"If growth continues to slowly decelerate, but inflation strongly takes off again in the wrong direction, the expectation of a Fed interest rate cut in 2024 is starting to look increasingly more out of reach," Sonola said.
A slowing US economy may continue.
"Looking ahead, we see the economy gently cooling as slower labor demand, easing wage growth, stubborn inflation, and tight credit conditions constrain private sector activity," Daco said before the GDP reading. "In particular, we note that if inflation proves to be stickier than anticipated, the downside risk to the economy from reduced real income growth, a 'higher for longer' Fed stance and tightening financial conditions would be notable."