US economic growth slows in Q1 2024

The slowdown in US economic growth in the first months of the year was confirmed overnight Thursday by the third and final estimate of GDP for the March quarter.

Growth was estimated at an annual rate of just 1.4%—better than the 1.3% estimate in the first two estimates but well down from the 3.4% annual rate in the closing months of 2023.

The outcome was also stronger than Australia’s 1.1% growth rate in the first quarter.

The extent of the US slowdown had been expected by economists, but the main drivers of the slowing pace of activity remained higher imports and business inventories, which helped offset a surge in business investment.

Imports and business inventories bounce around from quarter to quarter and don’t necessarily reflect the underlying health of the economy. In fact, both are a bit misleading.

Higher imports can actually reflect rising underlying demand from consumers and businesses (for capital goods), and high inventories can be negative (reflecting weakening consumer and business demand) or a temporary overstocking in expectation of higher sales in coming quarters.

If they remain factors in the pace of growth in the June quarter (which ends on Sunday), then they are a big negative for future growth.

The government said imports shaved 0.82 percentage points off first-quarter growth. Lower inventories subtracted 0.42 percentage points.

A strong rise in business investment hinted at one explanation of the rise in imports. The government said business investment rose at a 4.4% annual pace last quarter, up from its previous estimate of 3.2%.

The report showed that higher investment in factories and other nonresidential buildings and in software and other types of intellectual property helped boost the increase.

Much of this rise is spending on renewables under President Biden’s Inflation Reduction Act of 2023, with nearly $US370 billion in spending on materials, vehicles, batteries, etc.

The major negative from the report was a big slowdown in some consumer spending.

After growing at a solid annual pace of more than 3% in the second half of last year, consumer spending slowed sharply in the first quarter.

Spending on appliances, furniture, and other goods fell at a 2.3% annual rate, but spending on travel, restaurant meals, and other services rose at a faster 3.3% rate, which was a surprise given the complaints from fast food and restaurant chains about weak consumer spending in the quarter.

Meanwhile, the US jobs market remains solid, judging by first-time unemployment benefits applications. They eased last week by 6,000 to a seasonally adjusted 233,000 for the week ended June 22.

The claims data included last Wednesday’s Juneteenth holiday. Claims tend to be volatile around public holidays. Claims remain at historically low levels and are being closely watched for signs of whether employers are laying off more people as the economy slows in response to the rapid interest rate hikes from the Federal Reserve since 2022.

The number of people receiving benefits after an initial week of aid, a proxy for hiring, increased by 18,000 to a seasonally adjusted 1.839 million during the week ending June 15. The so-called continuing claims data covered the period during which the government surveyed households for June’s unemployment report.

The jobless rate rose to 4.0% in May for the first time since January 2022. The June data will be issued next Friday.

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