US Economy: GDP Growth Slows to 1.3% in Q1 2024

US Economy: GDP Growth Slows to 1.3% in Q1 2024

Key Points:

  • US economy: Q1 2024 GDP growth slowed to 1.3%, down from 3.4% in Q4 2023.
  • Consumer Spending Decline: Consumer spending grew by 2%, a decrease from previous estimates and past quarters.

The US economy slowed in Q1 2024, with GDP growth at an annual rate of 1.3%. This figure marks a decline from the previous estimate of 1.6% and a substantial drop from the 3.4% growth seen in the previous quarter. This quarter’s growth rate is the weakest since spring 2022. Several factors contributed to this downturn, including a surge in imports, which detracted 1% point from growth, and a reduction in business inventories, which further subtracted 0.5% points.

US Economy: Consumer Spending Growth Drops to 2%

Consumer spending, which constitutes approximately 70% of economic activity, grew at an annual rate of 2% in Q1 2024, down from a previously estimated 2.5%. This rate also represents a decrease from the over 3% growth observed in the previous two quarters. Notably, spending on goods plummeted by 1.9%, the largest drop since 2021, while spending on services surged by 3.9%, the highest increase since mid-2021.

Business Investment Adds 1% Point to GDP

Business investment contributed positively to the GDP, adding 1% to overall growth. Leading sectors in this area included housing, software, and research and development. The robust performance in these sectors indicates ongoing confidence and investment in the future economic landscape despite broader economic challenges.

Core Inflation Climbs to 3.6% in Q1 2024

Inflation surged to 3.3% in Q1 2024, up from 1.8% in Q4 2023, marking the highest yearly increase. Core inflation, which excludes volatile food and energy prices, increased to 3.6%, up from 2% in the previous two quarters. These figures highlight persistent inflationary pressures that continue to impact the purchasing power of consumers and the overall cost of living.

Feds Delays Rate Cuts Amid High Inflation

The Federal Reserve’s ongoing interest rate hikes, initiated over two years ago, were expected to lead to a recession. However, the economy has shown resilience with continued growth and ongoing hiring.

Despite plans to cut rates three times in 2024, high inflation has delayed the first expected cut to November 2024, as indicated by the CME FedWatch tool. The Federal Reserve remains cautious, holding off on rate cuts until inflation aligns more closely with the 2% target.

US Economy Recovery Expected with 3.5% Growth

The next GDP estimate is scheduled for release on July 25, 2024. The Feds Bank of Atlanta’s forecasting tool suggests that Q2 2024 is on track for a 3.5% annual growth rate. This projection offers a more optimistic outlook, indicating potential economic recovery and acceleration following the sluggish performance in the first quarter.