U.S. Economy Slows Amid Sticky Inflation in Q1 2024

The U.S. economy grew slower than previously expected in Q1 2024 as inflation re-accelerated and consumers dialed back their spending on durable goods. According to the Bureau of Economic Analysis' second estimate of U.S. gross domestic product for the first quarter of 2024, the economy grew at an annualized rate of 1.3 percent during the period, a downward revision from the previous estimate of 1.6 percent, which had already undercut expectations.

According to the BEA, the slowdown compared to Q4 2023, when real GDP increased had 3.4 percent, primarily reflected decelerations in consumer spending, exports and government spending as well as an increase in imports, which are a subtraction in the calculation of GDP. The downward revision compared to the advance estimate primarily reflects a stronger-than-expected deceleration in consumer spending, which was driven by a modest decline in spending on nondurable goods and a significant decline in durable goods spending, likely caused by sticky inflation and high interest rates.

While the latest reading marks the slowest growth since Q2 2022, economists won't be overly concerned by it as the Fed has been trying to pour cold water on the economy for two years in its continued efforts to tame inflation. The more worrying outcome was the fact that the price index for personal consumption expenditure (PCE), the Fed's preferred inflation gauge, heated up in the first three months of 2024, dampening hopes of any imminent rate cuts. The PCE price index increased at an annual rate of 3.3 percent in Q1 2024, up from just 1.8 percent in the fourth quarter of 2023. The core PCE index, excluding food and energy, increased 3.6 percent in the first quarter, up from the Fed's target level of 2.0 percent in the past two quarters.