The United States economy loses strength in the middle of an election year. After a 2023 of strong growth that exceeded all expectations, the world’s leading economy cooled in the first quarter of this year. The slowdown was somewhat greater than anticipated in the first estimate and remained at only 0.3% quarterly (a rate of 1.3% quarterly annualized), according to data published this Thursday by the Office of Economic Analysis of the Department of Trade. This downward revision from the 1.6% rate that had been calculated as the first advance was expected by economists and represents a slowdown from the annualized rate of 3.4% in the fourth quarter of 2024 (0.8% quarterly ). The data still has to be reviewed a second time.
“The first quarter increase primarily reflected increases in consumer spending and housing investment, which were partially offset by a decline in inventory investment. “Imports, which remain in the calculation of GDP, increased,” explained the Office of Economic Analysis.
The slowdown is bad news for the president of the United States, Joe Biden, who is seeking re-election in the November presidential elections. While inflation continues to subside, job creation and growth in gross domestic product (GDP) are the economic credentials with which Biden tries to counteract discontent with prices. Even so, the fact that part of the slowdown is due to inventories and the foreign sector puts this worsening in growth into perspective.
In fact, disposable personal income increased by $266.7 billion, at an annualized 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 at a quarterly annualized rate of 1.9%, representing an upward revision of 0.8 percentage points.
The Federal Reserve indicated this Wednesday that growth continued in the first half of the second quarter, but noted that it had detected signs of greater pessimism “in the face of growing uncertainty and greater downside risks.”
The highest interest rates in 23 years are taking a toll on growth. Still, Federal Reserve Chair Jerome Powell has warned that he will not begin lowering rates until the central bank has greater confidence that inflation is sustainably headed toward the 2018 price stability goal. %.
Although the Federal Reserve chair believes there will be no further rate hikes, the current level is being held longer than initially thought and it is unclear when the first rate cut will come. Investors and analysts await the clues given by the members of the Federal Open Market Committee (FOMC) of the Federal Reserve after the meeting on June 12. In it they must update their forecasts on what the appropriate monetary policy to follow will be. The March forecasts, which still pointed to three cuts of 0.25 points until the end of the year, are now a dead letter and investors believe that there will be one or at most two rate cuts until December.
The prospect of rates staying higher for longer has led to declines in bond prices. The profitability of 10-year Treasury securities, which moves in the opposite direction to the price, has in recent days marked its highest levels since the end of April, above 4.6%.
Compared to the fourth quarter, the GDP slowdown in the first quarter primarily reflected slowdowns in consumer spending, exports, and state and local government spending, as well as a decline in federal government spending. These movements were partly offset by an acceleration in residential fixed investment. Imports accelerated.
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