The U.S. economy grew at an annualized rate of 1.3% in the first quarter of 2024, marking a downward revision from the advance estimate of 1.6%.
This represents the slowest growth rate since the second quarter of 2022. The revision was primarily driven by a decrease in real consumer spending, which was adjusted down from 2.5% to 2%.
The GDP report from the Bureau of Economic Analysis, released Thursday, also indicated a slight downward adjustment of 0.1 percentage points in both the headline and core Personal Consumption Expenditure (PCE) price index for the last quarter.
The slower-than-expected growth and marginally lower inflation figures eased Treasury yields, with the 10-year benchmark note falling 5 basis points to 4.57%. This drop sent bond ETFs higher, with the iShares 7-10 Year Treasury Bond ETF (NASDAQ:IEF) rising 0.4%.
The critical question remains whether these developments will ease the pressure on the Federal Reserve to cut interest rates, or if further inflation reports are needed to gain a more comprehensive understanding of economic dynamics.
5 Economists React To Q1 GDP, PCE Data
- Chris Zaccarelli: The chief investment officer at Independent Advisory Alliance views the recent economic data as “a double-edged sword.” Slowing personal consumption signals that economic expansion is cooling. This could concern companies and stock market investors.
But it also suggests that inflation is declining. This could eventually allow the Fed to reduce interest rates. Inflation will likely remain “relatively sticky” and the Fed will stay on the sidelines for most of 2024. Still, Zaccarelli remains optimistic about corporate profits and an ongoing bull market for stocks.
- Jeffrey Roach: The chief economist at LPL Financial notes how consumer spending was weaker than initially reported, reducing the headline growth to 1.3% annualized. He highlighted that consumer momentum is slowing due to persistent inflation pressures. However, he sees a positive aspect in business investment, particularly in new technologies like artificial intelligence.
- Bill Adams, chief economist at Comerica Bank, emphasizes that the Fed's tight interest rate policy is “clearly visible” in the first quarter GDP report. The significant decline in interest-rate sensitive multifamily residential investments highlights the broader economic impact. Adams also notes that a less accommodative fiscal policy has contributed to the pullback in durable goods spending.
Revisions to economic growth and inflation might prompt the Fed to consider reducing interest rates by September. Adams also highlights that a cooler economy is limiting businesses’ ability to raise prices, which could help slow inflation in the second half of 2024.
- Sam Stovall, chief investment strategist at CFRA Research, views the slower Q1 GDP growth as somewhat encouraging but cautions that these data are subject to further revisions. Stovall anticipates that the Fed might start cutting rates as early as September, though he is less confident about this timeline compared to earlier predictions.
“We had been saying for a while that we thought we’d get 2 cuts this year, September and December. But I would tend to say that we are becoming less confident about the start in September,” he said. He believes that once the Fed begins cutting rates, it could benefit stocks, particularly in interest-sensitive sectors like financials and real estate.
- Diane Swonk: “The largest downward revision was consumer spending. This echoes challenges retailers cite,” KPMG US chief economist wrote on X. “Big ticket durable goods, which require financing, contract the most.” She observes that credit card usage has flatlined, with subprime and young borrowers hitting their limits. Swonk highlights an increase in business investment, driven by spending on chip plants, despite a slowdown in government spending.
Swonk suggests that inflation improvements in late 2023 were overstated and that inflation remains a significant issue. “The net result is that inflation is still too hot for too many, which is keeping the Federal Reserve from cutting rates.”
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