The United States economy slowed in an election year, growing just 0.3% in the first quarter | Economy
The United States economy is losing steam in the middle of an election year. After strong, better-than-expected growth in 2023, the world’s leading economy slowed in the first quarter of this year. According to data released this Thursday by the Commerce Department’s Office of Economic Analysis, the slowdown was slightly larger than expected in the first estimate, remaining at just 0.3% quarterly (1.3% quarterly year-on-year). This downward revision from the 1.6% rate that was calculated as the first increase was expected by economists and represents a slowdown from the 3.4% annual rate in the fourth quarter of 2024 (0.8% quarterly). . The data has yet to be reviewed a second time.
“The increase in the first quarter primarily reflected increases in consumer spending and housing investment, which were partially offset by lower inventory investment. Imports, which remain in the calculation of GDP, have increased,” explained the Office of Economic Analysis.
The slowdown is bad news for US President Joe Biden, who is seeking re-election in the November presidential election. While inflation continues to decline, job creation and gross domestic product (GDP) growth are the economic means by which Biden is trying to counter price discontent. However, the fact that the slowdown is partly driven by inventories and the foreign sector puts a deterioration in growth ahead.
In fact, disposable personal income increased $266.7 billion at an annual rate of 5.3% in the first quarter, representing an upward revision of $40.5 billion from the previous estimate. Real disposable personal income increased 1.9% year over year in the quarter, representing an upward revision of 0.8 percentage points.
On Wednesday, the Federal Reserve said growth continued in the first half of the second quarter, but said it found signs of increasing pessimism “amid rising uncertainty and increasing downside risks.”
The highest interest rates in 23 years are weighing on economic growth. However, Federal Reserve Chairman Jerome Powell warned that he will not begin cutting rates until the central bank has greater confidence that inflation is moving steadily toward its price stability target in 2018.
Although the Federal Reserve chairman believes there will be no further rate hikes, current levels have been held in place longer than initially expected and it is unclear when the first rate cut will occur. Investors and analysts are awaiting clues from members of the Federal Reserve’s Federal Open Market Committee (FOMC) after its June 12 meeting. In it, they must update their forecasts of what appropriate monetary policy will be. March forecasts, which still pointed to three 0.25 point rate cuts before the end of the year, are now a dead letter, with investors believing there will be one or at most two rate cuts before December.
The prospect that rates will remain high for a long time has driven bond prices lower. The 10-year Treasury yield, which is moving in the opposite direction of the price, in recent days has reached its highest level since late April, above 4.6%.
Compared to the fourth quarter, the slowdown in GDP in the first quarter primarily reflected slowing consumer spending, exports, state and local government spending, and lower federal government spending. These changes were partially offset by an acceleration in fixed investment in the residential sector. Imports accelerated.
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