GDP trudged up at an annual rate of 1.4% in the first quarter of the year. (iStock)
U.S. gross domestic product (GDP) increased at an annual rate of 1.4% in the first quarter of 2024, data from the Bureau of Economic Analysis (BEA) found. This increase is a sign the economy is solid, but not growing at a substantial pace.
This is a slight slowdown from the previously estimated 1.6% GDP increase for the first quarter. Last year, in the fourth quarter of 2023, GDP increased by 3.4%. Compared to last year, economic growth is slowing. The slowdown is largely due to more cautious consumers.
"An array of retail, labor, and consumer data all point to an economy that’s slowing as households grip their pocketbooks a bit more tightly," Jim Baird, Plante Moran Financial Advisors chief information officer, said in a statement. "That’s apparent in the most recent estimates of Q1 GDP and appears likely to be even more clear in the Q2 data when it’s released in late July."
Consumers haven’t had the freedom to spend in recent months, with rising debt levels and high inflation squeezing wallets.
"The sharp reduction in outstanding credit card balances has been reversed, as outstanding consumer credit has surged in recent years, limiting the ability of many households to continue to spend at the same pace that they have in recent years," Baird said.
Compared to the fourth quarter, the deceleration in GDP reflected slowdowns in exports and government spending, on top of less consumer spending. This decrease was offset by imports and an acceleration in residential fixed investment.
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Interest rates hold steady, with a potential cut set for the end of the year
May’s inflation report showed that inflation increased 3.3% over the last 12 months. This increase continues to drive up consumer concerns and forced the central bank to keep rates steady at 5.25% to 5.5%, the same place rates have been since July 2023.
Although the Federal Reserve is positive inflation will level out at the desired 2%, rates won’t be cut until there’s more evidence that’s where inflation is heading.
Economic activity is largely going strong, with jobs on the rise and unemployment at just 4%, according to the Bureau of Labor Statistics. This bodes well for future potential cuts, but inflation needs to ease beforehand.
Rates are likely to remain high for the remainder of the year, but if inflation does dip, consumers could see a rate cut at the end of the year.
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Consumers still worry about inflation
Consumers are still rightfully worried about inflation, which has remained high. Consumer sentiment fell in June, marking the third month in a row Americans have been less than thrilled with their financial situation due to inflation.
The University of Michigan’s consumer sentiment index dropped to 65.6 this month from 69.1 in May. This drop puts the reading below one that typically indicates a strong economy, at least in the eyes of everyday consumers. Back in March, the index sat at 79.4, showing increased optimism in the economy, but the gains are now largely reversed as inflation remains high.
Food costs are among one of the largest concerns Americans have, as prices continue to climb thanks to inflation. About 64% of Americans polled in a Purdue University study predict food prices will climb again over the next year.
"Even though food inflation has cooled significantly since then, dropping to 2.6% this month, inflation remains positive," Joseph Balagtas, professor of agricultural economics at Purdue said. "Consumers, on average, are predicting food price inflation to rise a bit in the coming year."
Shoppers surveyed expect the average price of food and other grocery store items to rise 3.7% within the year.
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