US economy expands at slower pace in Q1

The US economy expanded at a slower pace in the first quarter due to downwards adjustments in consumer spending, according to Reuters citing the US Commerce Department report.

GDP growth was revised down to 1.3 per cent annually, lower than the initial estimate of 1.6 per cent and significantly slower than the 3.4 per cent rate in Q4 2023. This downgrade follows recent softness in retail sales and equipment spending.

Inflation for Q1 was adjusted to 3.3 per cent, down from 3.4 per cent, marking the most substantial quarterly price pressure growth in a year.

This unexpected rise in inflation led Federal Reserve policymakers to delay anticipated interest rate cuts. Despite this, US Treasury yields decreased slightly, and equity index futures recovered before the opening bell on Wall Street.

This revision brings Q1 growth to its lowest since Q2 2022, with output below the Fed’s target of 1.8 per cent for noninflationary potential. However, the sluggish start to the year isn’t expected to persist into Q2, partly due to continued job market strength.

Regarding employment, new claims for unemployment benefits rose slightly last week, but overall, the labour market remains robust. Initial claims increased to 219,000 while continuing claims rose to 1.791 million.

The labour market is gradually stabilizing following multiple interest rate hikes by the Federal Reserve since March 2022 to temper overall economic demand.