Quiver Quantitative - The U.S. economy grew more slowly in the first quarter than previously estimated after downward revisions to consumer spending, while a key measure of inflation ticked down, keeping the Federal Reserve on track to possibly begin cutting interest rates at least once before the end of the year. Gross domestic product - the broadest measure of economic activity - grew at a 1.3% annualized rate from January through March, the Commerce Department reported on Thursday, down from the advance estimate of 1.6% and notably slower than the 3.4% pace in the final three months of 2023. The first-quarter growth downgrade suggests the U.S. central bank's aim of gradually cooling the economy through high interest rates is having an impact as consumers increasingly balk at higher prices, although it remains uncertain whether the weakening trend in inflation will continue. Corporate profits dropped for the first time in a year, falling 0.6% to $3.39 trillion from the fourth quarter's record high.
Ahead of Friday's personal consumption expenditure report for April - the Fed's preferred inflation gauge - first-quarter growth in the core Personal Consumption Expenditures Price Index was revised down to 3.6% from 3.7%. Weekly jobless claims also rose more than expected. U.S. Treasury yields dipped following the report, while chances for at least a 25-basis-point interest rate reduction in September edged up to nearly 52%, from 48.7% before the data, according to the CME Group's (NASDAQ:CME) FedWatch Tool.
Market Overview:
- U.S. GDP growth for Q1 was revised down to 1.3%.
- Core PCE Price Index growth for Q1 was revised down to 3.6%.
- Weekly jobless claims rose more than expected, influencing rate cut expectations.
- The downward revision to GDP brings the first-quarter growth rate to the lowest since Q2 2022.
- Yields on Treasury securities fell, bolstering hopes for a rate cut this year.
- The average of GDP and GDI, considered a better measure of economic activity, was revised to 1.4%.
- Investors await April's personal consumption expenditure report, the Fed's preferred inflation gauge.
- Potential interest rate reductions by the Fed could impact market stability.
- The labor market shows underlying strength, supporting economic stability despite a slight rise in jobless claims.
The revision in GDP figures highlights a significant pullback in consumer spending, which had been a key driver of economic growth in previous quarters. Analysts suggest that the reduced spending on goods and services may reflect higher borrowing costs and inflationary pressures that have begun to weigh on household budgets. This shift has raised concerns about the sustainability of economic growth in the coming months, particularly if inflation remains elevated and continues to erode purchasing power.
The labor market's resilience remains a bright spot in the economic landscape, with steady job creation providing a buffer against broader economic slowdowns. Initial claims for state unemployment benefits rose 3,000 to a seasonally adjusted 219,000 for the week ended May 25, the Labor Department said on Thursday. Economists polled by Reuters had forecast 218,000 claims. Despite the rise in jobless claims, the labor market remains resilient, providing a cushion for the economy against potential downturns.
This article was originally published on Quiver Quantitative