Latest US data shows that economic growth in the first quarter of the year was much weaker than forecast, while prices increased at a faster rate.
Customers shop inside a supermarket in the US. (Image: Getty Images).
GDP growth was lower than forecast
The report released by the US Bureau of Economic Analysis just a few minutes ago showed that GDP in the first quarter increased by 1.6% (speed normalized by year). In the two previous quarters, GDP increased by 3.4% and 4.9%, respectively.
FishEconomists polled by Dow Jones expected a 2.4% increase. Accordingly, it can be seen that the growth rate of the world’s largest economy in the first quarter of the year was significantly lower than forecast.
Newspaper The report also pointed out that consumer spending increased by 2.5% in the first quarter, slowing down compared to 3.3% in the fourth quarter of 2023. Fixed investment, along with federal and local government spending, are the driving forces behind GDP growth. In Meanwhile, investment in inventories of private enterprises decreased in the first three months of 2024.
Outside In addition, the US economy also received some bad news about inflation. The personal consumption expenditures price index (PCEPI) – the preferred inflation measure of the US Federal Reserve (Fed) – increased by 3.4% in the first quarter, marking the strongest increase in a year.
Excluding volatile food and energy costs, core PCEPI rose 3.7%, well above the central bank’s 2% target. Fed officials often look at core inflation to gauge long-term trends.
Thi The financial market went down after the report, as noted by CNBC. Futures contracts tied to the Dow Jones industrial average fell more than 400 points. Treasury yields edged higher, with the 10-year yield climbing to 4.69%.
The new report was released as the market is concerned about the direction of monetary policy and when the Fed will start cutting interest rates.
Interbank borrowing costs are currently in the range of 5.25 – 5.5%, the highest level in more than 22 years even though the US central bank has not raised interest rates since July 2023.
Through the dot chart announced at the March policy meeting, Fed officials said they still expected to lower interest rates three times this year.
However, many officials have expressed a cautious attitude, even more hawkish than a few months ago, when inflation figures in the first three months of the year continuously increased higher than forecasts.
The Investors have had to adjust their assessment of when the Fed will begin to loosen policy. According to data from CME Group, they recently expected the Fed to lower interest rates for the first time in September and likely only “loosen” once or twice this year.
But, period Investors’ expectations changed again after the GDP report was released. The market currently believes that the Fed will only reduce interest rates once in 2024.
GDP growth may continue to decelerate
Divide share with CNBC“The economy will likely decelerate further in the coming quarters as consumers may run out of spending money,” said Jeffrey Roach, chief economist at LPL Financial.
“The savings rate goes down as inflation puts greater pressure on consumers. We should expect inflation to cool down throughout this year thanks to slowing aggregate demand, although the Fed is still far from reaching its 2% target,” he continued.
Look common, nperson Consumption has kept pace with rising inflation, although price pressures have indeed had an impact on wage increases. The personal savings rate decelerated from 4% in the fourth quarter of 2023 to 3.6% in the first quarter.
Income adjusted for taxes and inflation rose 1.1% in the same period, less than the 2% figure recorded in the last three months of last year.
Tissue Spending patterns also changed in the last quarter. Spending on goods decreased 0.4%, while services increased 4% – the highest level since the third quarter of 2021.
Thi A stable labor market has helped strengthen the economy. Another report released by the US Department of Labor showed that the total number of initial applications for unemployment benefits in the week to April 20 was 207,000, down 5,000 from the previous week and below the estimate of 215,000.
