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In the first quarter of the year, the economic growth rate of the United States dropped to a low point in nearly two years, and the inflation rate rose to a disturbing level. The trend of strong demand and moderate price pressure that had lasted for a period of time was broken, which curbed the optimistic expectation of a soft landing.
The initial data released by the government shows that GDP in the first quarter grew at an annual rate of 1.6%. As the engine of economic growth, personal expenditure increased by 2.5%, lower than expected.
The report released by the US Bureau of Economic Analysis on Thursday showed that a closely watched core inflation indicator rose to 3.7%, higher than expected, the first month on month acceleration in a year.
These figures show that after the unexpected strong growth of the previous year, the economic momentum at the beginning of 2024 has significantly weakened. With the recovery of inflation rate, the policy makers of the Federal Reserve may face the pressure to further delay the interest rate cut, and even consider whether the borrowing costs are already high enough.
US Treasuries fell and the S&P 500 index opened lower. Traders postponed the expected date of the first interest rate cut by the Federal Reserve to later this year.
| index |
actual |
estimate |
| gross domestic product |
+1.6% |
+2.5% |
| personal consumption |
+2.5% |
+3.0% |
| Core PCE price index |
+3.7% |
+3.4% |
"Fierce inflation is the really important information in this report," wrote Olu Sonola, head of Fitch's US economic research, in a report. "If economic growth continues to slow down slowly, but inflation is heading in the wrong direction, the hope of the Federal Reserve to cut interest rates in 2024 will begin to become increasingly remote".
The main reason for the rise of inflation in the first quarter was that the service inflation rate excluding housing and energy reached 5.1, almost twice the previous quarter. Inflation, consumer spending and income data for March are scheduled to be released on Friday.
US economic growth in the first quarter was lower than expected
Federal government spending dragged down GDP for the first time in two years. Commercial inventories fell for the second consecutive quarter.
The GDP report shows that, driven by health care and financial services, service expenditure has recorded the largest growth since the third quarter of 2021. Affected by automobile and gasoline prices, commodity expenditures fell for the first time in more than a year.
The annual growth rate of residential investment is close to 14%, the highest since the end of 2020, reflecting the efforts of builders to increase inventory.
"If the category with high volatility is excluded, the economic growth rate will continue to be higher than the trend level. In addition, strong imports also reflect strong demand, which is not desirable for the Federal Reserve." - Economist Eliza Winger
Another data released on Thursday showed that the number of people applying for unemployment benefits for the first time fell to 207000 last week, the lowest level in two months. The number of people who continued to apply for unemployment benefits also declined.
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