As markets await the U.S. Department of Commerce‘s first-quarter gross domestic product (GDP) data on Thursday, the U.S. economy’s growth is expected to slow but still remain solid at 2.4 percent annually. Meanwhile, inflation could have accelerated amidst expectations of a delay in the Federal Reserve’s interest rate cuts to September.
Consumers have been the primary drivers of growth in the U.S. economy, due to factors such as lower mortgage rates and rising purchasing power. Despite inflationary concerns, businesses have enjoyed higher profit gains due to strong pricing power, with consumers demonstrating resilience in their spending habits.
The U.S. labor market has exhibited remarkable resilience, with job gains averaging 276,000 per month in the first quarter of 2024. Low layoffs have sustained wage growth, contributing to an increase in consumer spending, which remains a key driver of economic activity.
Inflationary pressures persist
Inflation has likely accelerated, with the personal consumption expenditures (PCE) price index forecasts increasing at a 3.4 percent rate after rising by 2 percent in Q4 of 2023. The PCE price index is one of the main inflation measures that the Federal Reserve uses to track inflation. With expectations of a delay in interest rate cuts, markets expect inflation to persist farther away from the Fed’s 2 percent target. The central bank has kept interest rates at 5.25-5.50 percent since July 2023.
Growth forecasts rise
According to a recent survey of economists, the U.S. economy has likely grown 2.4 percent annually in Q1. This forecast marks a decline from the 3.4 percent in Q4 of 2023. Moreover, the International Monetary Fund upgraded its 2024 forecast for the U.S. economy’s growth from 2.1 percent to 2.7 percent on stronger employment and consumer spending.
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Housing market supports growth
The U.S. housing market will support the U.S. economy with forecasts of double-digit growth in residential investment amidst a severe shortage of previously owned homes for sale. This shortage is encouraging the construction and sale of new single-family homes. Moreover, business spending on intellectual property has also contributed to economic growth, reflecting ongoing investments in innovation and technology amidst the artificial intelligence surge.
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