The rate of economic growth in the United States has decreased to 1.6%, while inflation rates have remained stable

The U.S. economy continued to grow in the first quarter, albeit at a slower pace, which disappointed investors who were hoping for a cut in interest rates by the Federal Reserve in the coming months. According to the Commerce Department, the gross domestic product (GDP) expanded at a seasonally and inflation-adjusted annual rate of 1.6% in the first quarter, lower than the 2.4% anticipated by economists surveyed by The Wall Street Journal.

Inflation data came in higher than expected, resulting in a sell-off in bonds and a decline in U.S. stocks. However, the report indicated that American consumers remain strong due to increased hiring and wage growth. Spending on healthcare, insurance, and other services continued to grow, indicating strong underlying demand. Although spending on goods such as cars and gasoline decreased, economists noted that figures for business inventories and international trade can fluctuate significantly throughout the year. The report also suggests that inflation, according to the Fed’s preferred gauge, was likely higher than expected in March. Economists had already revised their expectations for price pressures in March after a previous inflation report.

Excluding food and energy prices, the personal-consumption expenditures price index rose by 3.7% in the first quarter, exceeding the expected increase of 3.4%. This indicates that price pressures were strong in March, and previous inflation readings for January and February may be revised upwards. Thursday’s snapshot comes after a series of recent federal data suggesting that the American economy is still thriving despite high interest rates. In 2024, employers have been hiring even faster than expected, thanks in part to an influx of immigrants that is boosting growth and tax revenues. However, this growth is straining some governments’ resources, and credit card companies have noticed increased customer spending compared to last year.

As we enter earnings season, many businesses are feeling optimistic. GM’s profit guidance has been upgraded due to strong demand for gas-powered trucks and SUVs, resulting in year-over-year growth in first-quarter retail sales. Lockheed Martin is fulfilling a backlog from conflicts in Ukraine and the Middle East by producing new missiles, air-defense systems, and space hardware. Despite higher borrowing costs, some industries are still investing in capital-intensive projects across the country. Nucor, a steel producer, plans to increase spending this year with investments in mills in West Virginia and North Carolina.

Chief Financial Officer Steve Laxton stated that “On a macro level, the U.S. economy seems to be showing near-term resilience” to analysts.

However, this ongoing growth has also caused persistent price pressures, raising concerns that inflation may settle closer to 3% instead of the Federal Reserve’s 2% goal.

Plateauing inflation has become a challenging issue for President Biden in an election year, despite a promising economic outlook. Furthermore, the expectation of rate cuts by investors has negatively affected tech stocks focused on artificial intelligence, which had previously driven a market rally.

Nevertheless, there are signs that the economy is cooling off. Low-income Americans are saving less than before the pandemic, and mortgage rates have recently risen above 7%, causing home sales to drop significantly in March. Additionally, average hourly earnings in March saw the slowest annual growth rate since June 2021.

Many economists believe that these issues will worsen and lead to a slowdown in inflation if and when the labor market becomes less competitive.

News Source:The Wall Street Journal