The latest report from the Commerce Department has revealed that the United States’ economy experienced a significant slowdown in the first quarter of 2024. The gross domestic product (GDP), which measures the total output of goods and services, grew at an annual pace of 1.6%, a sharp decline from the 3.4% growth rate in the final quarter of 2023. This deceleration can be attributed to high interest rates, which have been a concern for the country’s economic growth.
The report also highlighted a surge in imports, which reduced first-quarter growth by almost 1 percentage point. In addition, businesses have been reducing their inventories, affecting the overall growth rate. However, despite these challenges, the core components of the economy remain strong. Consumer spending, which is a key driver of economic growth, continued at a solid pace in the first quarter.
The strong pace of investment by businesses also contributed to the economy’s growth last quarter. While the import and inventory numbers can be volatile, there is still a lot of positive underlying momentum, as stated by Paul Ashworth, chief North America economist at Capital Economics. This indicates that the economy is still on a steady path, despite the temporary setbacks.
The report also highlighted the concern of the Federal Reserve regarding price pressures. Inflation, which is a measure of the increase in prices, accelerated to a 3.4% annual rate in the first quarter, up from 1.8% in the last quarter of 2023. Excluding volatile food and energy prices, core inflation rose at a 3.7% rate, showing a significant increase from the previous quarter. This is a continuing source of concern for the Federal Reserve, and they are closely monitoring the situation.
Despite these challenges, consumer spending continued to rise at a solid pace of 2.5% in the first quarter. This is a positive sign, although it is slightly lower than the rate in the previous two quarters. The spending on services, which includes a wide range of activities such as movie tickets, restaurant meals, and airline fares, rose by 4%, the fastest pace since mid-2021. However, there was a slight decline in spending on goods such as appliances and furniture, which fell by 0.1%.
The state of the U.S. economy has been a topic of discussion for many Americans, especially as the election season has intensified. Despite the healthy job market, a near-record-high stock market, and a sharp pullback in inflation, many Americans still blame President Joe Biden for high prices. This has been used as a political tactic by Republican critics to derail his re-election bid. However, it is important to note that inflation has significantly slowed down from its peak in 2022, but prices still remain above their pre-pandemic levels.
The first quarter of 2024 marked a slowdown in the economy after six consecutive quarters of at least 2% annual growth. The 1.6% rate of expansion was also the slowest since the economy shrank in the first and second quarters of 2022. This can be attributed to the higher borrowing rates for home and auto loans, credit cards, and business loans, resulting from the 11 interest rate hikes imposed by the Federal Reserve to control inflation.
Despite the slowdown, the United States continues to outpace the rest of the world’s advanced economies. The International Monetary Fund (IMF) has projected a growth rate of 2.7% for the U.S. economy for the whole year of 2024, up from 2.5% in 2023. This is more than double the growth expected for other major economies such as Germany, France, Italy, Japan, the United Kingdom, and Canada.
One of the factors contributing to the economy’s growth is the increase in business investments in factories, warehouses, and other buildings. The federal incentives to manufacture computer chips and green technology in the United States have encouraged businesses to invest in the country. However, there has been a weak spending on equipment, and the trade deficit between imports and exports has also affected the economy’s growth.
Kristalina Georgieva, the IMF’s managing director, has cautioned that the strong economic growth in the U.S. has resulted in a longer time for inflation to reach the Federal Reserve’s target of 2%. However, there has been a significant slowdown in price pressures from their peak in mid-2022. The
