FX.co ★ U.S. Economic Growth Slows Much More Than Expected In Q1

On Thursday, a report issued by the Commerce Department revealed that economic growth in the United States was significantly lower than anticipated for the first quarter of 2024. According to the report, the Gross Domestic Product (GDP) demonstrated only a 1.6 percent increase for the first quarter of this year, a stark contrast to the 3.4 percent surge seen in the last quarter of 2023. Economists had originally predicted a GDP jump of 2.5 percent.

The modest GDP growth for the first quarter can be attributed to increases in state and local government spending, nonresidential and residential fixed investment, as well as consumer spending. On the contrary, the overall positive impact was somewhat mitigated due to a decrease in private inventory investment and an increase in imports, which are traditionally seen as a negative factor in GDP calculations.

The Commerce Department pointed out that the significant loss of momentum in the GDP growth for this quarter compared to the last was primarily due to a deceleration in consumer spending, state and local government spending, alongside exports, and a downturn in federal government expenditure.

The report also highlighted that growth in consumer spending reduced to 2.5 percent from the previous 3.3 percent in the fourth quarter. The figures reveal that while there is an increase in service expenditure, spending on goods is on a decline.

Jeffrey Roach, Chief Economist for LPL Financial, predicts further economic deceleration in the forthcoming quarters as consumers appear to be nearing the end of their spending spree. He attributes this to the pressure exerted on consumers by persistent inflation, resulting in declining savings rates.

In terms of inflation, data from the Commerce Department shows that the personal consumption expenditures price index saw a notable increase of 3.4 percent in the first quarter, rising from 1.8 percent in the last quarter. When food and energy prices are excluded, the index spiked by 3.7 percent, up from the 2.0 percent jump in the fourth quarter.

Roach anticipates inflation will gradually ease this year as aggregate demand slows down. However, he notes that achieving the 2% target set by the Federal Reserve could still take considerable time.