Amid US job growth above forecasts and accelerating inflation, the US economy in the first quarter of this year slowed more than expected.
A news release from the Bureau of Economic Analysis out Thursday showed US real gross domestic product rose at an annualized rate of 1.6%. That’s less than the forecast of 2.5%. The advance estimate for the first quarter shows real GDP had continued to slow: Real GDP rose at an annualized rate of 4.9% in the third quarter of 2023 before rising at a cooler annualized rate of 3.4% in the fourth quarter.
“Overall, US economic activity remains resilient, powered by consumers’ ongoing ability and willingness to spend, even if they are being more scrutinous in the face of high prices,” Gregory Daco, the chief economist for EY, said in written commentary ahead of the latest GDP reading. “A robust labor market along with positive real wage growth continues to provide a solid foundation to consumer outlays. Meanwhile, businesses are focusing on high return-on-investment projects and productivity-enhancing investments in an elevated cost and interest rate environment.”
The labor market has seen job openings cool but also has experienced strong monthly nonfarm payroll growth. The labor market is more Goldilocks-like where it’s not super hot but also not super cold.
Plus, inflation has been heating up; March’s year-over-year percent change in the consumer price index was higher than the forecast. That change was 3.5%, greater than the 3.4% forecast or the previous 3.2% rise in February.
“Looking ahead, we see the economy gently cooling as slower labor demand, easing wage growth, stubborn inflation, and tight credit conditions constrain private sector activity,” Daco said. “In particular, we note that if inflation proves to be stickier than anticipated, the downside risk to the economy from reduced real income growth, a ‘higher for longer’ Fed stance and tightening financial conditions would be notable.”
This is a developing story. Please check back for updates.
