US GDP Growth Slows in Q1 2024, but Optimism Remains
- Consumer spending and housing investment drive a modest 1.3% GDP growth.
- Inflation persists, but the labor market remains resilient with steady wage growth.
US GDP Growth Slows to 1.3% in Q1 2024 Amid Modest Consumer Spending
The US economy exhibited modest growth in the first quarter of 2024, with the real Gross Domestic Product (GDP) increasing at an annual rate of 1.3%. This growth rate represents a deceleration from the previous quarter's 3.4% expansion. The primary driver of the economy, consumer spending, grew at a slower 2.0% pace, a downward revision from the previously estimated 2.5%. Despite this slowdown, consumer spending and housing investment were the main contributors to GDP growth, while a decrease in inventory investment partly offset these increases.
Inflation remains a concern, with the price index for gross domestic purchases up 3.1% year over year in the first quarter. High prices have persisted longer than expected, which has affected consumer sentiment and spending habits. However, retail sales gains have been observed, partially driven by higher prices, though the rate of retail price increases has been slowing.
The labor market has shown resilience, with the three-month average payroll gain reaching 276,000 in March, although job growth slowed to 175,000 in April, and the unemployment rate saw a slight uptick to 3.9%. Private industry wage growth remained steady at an average of 4.3% year over year in the first quarter.
Optimism for Stronger Q2 2024 Performance with 3.5% Growth Estimate
Looking ahead, there is optimism for a stronger performance in the second quarter. The Federal Reserve Bank of Atlanta's GDPNow model estimates a 3.5% growth rate for Q2 2024. This optimism is echoed by forecasts from Goldman Sachs and Bank of America, which do not see the Q1 slowdown as indicative of a broader trend.
The Federal Reserve is expected to maintain a key short-term US interest rate near a 23-year high to combat inflation. Additionally, the upcoming presidential election has led some businesses to adopt a wait-and-see approach to new investments.
Despite the challenges, the US consumer remains resilient and is anticipated to be a catalyst for growth. Vanguard's outlook suggests that full-year 2024 economic growth could be slightly above trend, around 2%. Moreover, advancements in AI are expected to transform the economy and potentially power above-trend growth in the future.
While the US economy has slowed in the first quarter of 2024, the fundamentals remain solid, with consumer spending continuing to drive growth, albeit at a slower pace. The labor market remains robust, and inflation, while higher than desired, is expected to be managed through monetary policy. With technological advancements on the horizon, there is cautious optimism for the US economy's trajectory in the coming quarters.