The American economy expanded at a 1.4% annual pace from January through March, the slowest quarterly growth since spring 2022.
The Commerce Department’s slight upgrade from its previous estimate highlights a complex economic landscape, marked by high interest rates and consumer caution.
Consumer spending grew at just 1.5%, a drop from the initial 2% estimate, indicating the potential strain of rising borrowing costs. This comes after a robust 3.4% growth in the final quarter of 2023.
The first quarter’s GDP, though slower, underscores the economy’s adaptability despite volatile imports and business inventory adjustments. Imports cut 0.82 percentage points from growth, while declining inventories shaved off another 0.42 points.
Business investment, however, showed vigor, rising at a 4.4% annual pace, spurred by higher investments in factories, buildings, and intellectual property.
This uptick in business activity contrasts with consumer spending’s downturn, particularly on goods like appliances and furniture, which fell at a 2.3% rate. Conversely, spending on services, including travel and dining, grew by 3.3%.
Chris Zaccarelli, Chief Investment Officer at Independent Advisor Alliance, expressed concern over the slowdown in consumer spending, which drives about 70% of U.S. economic activity.
Gregory Daco, Chief Economist at EY, noted, “The economy remained resilient in the first quarter, private-sector demand growth was cooling, led by more consumer prudence. Importantly though, the economy is not retrenching, with business investment retaining moderate momentum.”
Looking ahead, expectations for growth in the April-June quarter remain cautious. An Oxford Economics model forecasts a modest 1.3% growth rate. Despite higher interest rates, the U.S. economy has demonstrated surprising resilience.
The Federal Reserve’s rate hikes aimed to curb inflation, which has dropped from a 9.1% peak in 2022 to 3.3%, though still above the Fed’s 2% target.
Employment has remained strong, with 272,000 jobs added in May and an unemployment rate of 4%. However, inflation pressures persist, with consumer prices rising at a 3.4% annual pace in early 2024, up from 1.8% in late 2023.
President Joe Biden and Donald Trump will likely debate the economy’s health, with inflation and cost of living at the forefront of voters’ minds. Despite significant economic strides, higher rents and grocery prices continue to challenge many Americans.
The Fed has hinted at a cautious approach to rate cuts, predicting just one reduction in 2024, a shift from the earlier forecast of three cuts.
The first quarter’s GDP report marks the final estimate, with the next assessment of the current quarter’s performance due on July 25.
You May Also Like:
