Preliminary estimates from the United States (US) Bureau of Economic Analysis reveal that the US economy expanded by 1.6% quarter-on-quarter in the first quarter of 2024 (Q1-24), marking a notable deceleration from the 3.4% q/q growth recorded in Q4-23. This figure, the lowest since the contraction experienced in 2022 (-0.6% q/q), fell well below market expectations of +2.5% q/q.
The sluggish growth was propelled by a slowdown in key sectors, including consumer spending (+2.5% q/q vs Q4-23: +3.3% q/q), exports (+0.9% q/q vs Q4-23: +5.0% q/q), and government spending (+1.2% q/q vs Q4-23: +4.6% q/q), despite stronger growth in imports (+7.2% q/q vs Q4-23: +2.2% q/q). However, residential investments (+13.8% q/q vs Q4-23: +2.3% q/q) and the services sector (+4.0% q/q vs Q4-23: +3.4% q/q) witnessed slight increases in pace.
Several factors contributed to the slower growth print, including the depletion of pandemic-era savings, a more conservative fiscal policy stance, the feedthrough impact of the US Federal Reserve’s tightening cycle, and increased geopolitical tensions. Despite the economic slowdown, price pressures remained elevated, primarily driven by the resilience of the services sector and wage growth.
Looking ahead, analysts anticipate that the actual figures may slightly exceed the preliminary estimates as more economic data becomes available. However, they believe that the US Federal Reserve is likely to prioritize addressing underlying inflationary pressures over the economic slowdown, potentially leading to a delay in rate cuts. Indeed, the CME FedWatch tool now indicates probabilities of “HOLD” decisions at the May to July policy meetings, with a 41.9% probability of a rate cut in September. This news underscores the complex challenges facing the US economy as it navigates through a period of slower growth and persistent inflationary pressures. Policymakers will need to carefully balance monetary policy decisions to support economic recovery while managing inflation expectations and external uncertainties.
