First quarter GDP growth disappoints
The U.S. economy grew just 1.6% at the annual rate in the first quarter of 2024, a disappointing reading that was below the consensus estimate of 2.4%. Real GDP growth in the first quarter was half of what was seen in the fourth quarter of 2023, which was 3.2%.
The underlying data were mixed. On the positive side, personal consumption expenditures and fixed investment from business contributed 2.59 percentage points to headline GDP growth in the first quarter—a figure that was closer to the consensus estimate. However, there were significate drags on growth in the latest data from private inventories and net exports, and goods consumption was lackluster.
Personal consumption expenditures rose 2.5% at the annual rate in the first quarter, boosted by spending on services (up 4.0%) but pulled lower by weakness for goods purchases (down 0.4%). Service-sector spending was buoyed by strength in financial services and insurance, health care, recreational services and transportation services. With that said, consumer spending at foodservices and accommodations declined from $1,075.7 billion in Q4 2023 to $1,070.4 billion in Q1 2024, down $5.3 billion and subtracting 0.10 percentage points from top-line GDP growth in the quarter. This highlights some spending sluggishness for the restaurants and lodging sectors.
In summary, these data suggest that, while consumer spending continues to increase modestly overall, Americans have been quite selective in their purchasing.
It is important to not lose sight of the positives in this data. The U.S. economy continues to expand, growing for the seventh consecutive quarter despite slowing in Q1. This is consistent with the “soft landing” that the Federal Reserve continues to pursue. While a recession is still possible, it is not in the baseline forecast. The U.S. economy is currently forecasted to grow 2.4% in 2024 (or 1.7% year-over-year in Q4 2024). Labor market strength continues to provide resilience in the U.S. economy, even as geopolitical uncertainties and other factors provide notable downside risks to the outlook.
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