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US economic growth in first quarter falls short of expectations at 1.6%; inflation may heat up
The US economy expanded less than projected in the first three months of 2024 as exports and consumer spending declined, according to the Commerce Department.
The US economy expanded less than projected in the first three months of 2024 as exports and consumer spending declined, confirming the expectations of the financial markets that the Federal Reserve would postpone rate-cutting until September.
The first quarter saw the world's largest economy rise by 1.6 percent, according to the Commerce Department data, which is slightly lower than the economists' expectations of 2.4 percent.
This represents a slowdown from the 3.4 percent rise in the last three months of 2023.
The Commerce Department said that the slow down “primarily reflected decelerations in consumer spending, exports, and state and local government spending.” It also noted a “downturn in federal government spending.”
Even though the most recent estimate indicates growth, President Joe Biden may be affected by economic pressures as he runs for reelection in November.
Also Read: US economy to outpace G7 peers with double GDP growth rate this year, claims IMF
Is US economy performing well?
According to economists, the US economy is performing well than the other developed nations. Before the start of tightening cycle, consumers locked in cheaper mortgage rates, while corporations refinanced debt. In addition, businesses are hoarding labour in wake of their inability to get workers during and post the COVID-19 outbreak. Therefore, they are benefiting from increased profit margins as a result of their strong pricing power.
Citing stronger than anticipated employment and consumer spending, the International Monetary Fund (IMF) raised its estimate for US GDP in 2024 to 2.7% from 2.1% in January.
While the October–December quarter's average was 212,000, the first quarter saw job gains at 276,000 per month.
Low layoffs are maintaining wage growth since consumer spending makes up over two thirds of economic activity.
Economists were not concerned about a return of pricing pressures, even if inflation likely increased, with the personal consumption expenditures (PCE) price index excluding food and energy anticipated to surge at a 3.4% rate after expanding at a pace of 2.0% in the fourth quarter.
According to EY chief economist Gregory Daco, consumer spending is still going strong for the time being, “even if they are being more scrutinous in the face of high prices”, AFP reported.
"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," he stated.
Also Read: US consumer inflation grows more than expected in March, Fed rate cut looms
What this mean for Fed rate cuts
Last year, inflation decreased significantly, but it has stopped declining in last few months. This is the primary explanation as to why the Fed does not want to reduce interest rates anytime soon.
The Fed will start lowering rates after it feels confident that inflation is under control and moving toward its 2% target.
