Although the US economy slowed dramatically in early 2024, it continued to grow at a steady pace.
The findings, released this week in a Commerce Department report, underscore a question that has been lingering over the economy: Should Americans be worried about where the economy is headed?
Economists interviewed by ABC News downplayed the alarm caused by the new data, pointing to resilient economic activity driven by strong U.S. consumers. The country is still far from the start of a recession, they said.
But some experts said the report was a sign that the twin threats of a gradual economic cooling alongside stubborn inflation could emerge. This trend could force the Federal Reserve to keep interest rates high even if the economy weakens.
Stephen Weiler, an economics professor at Colorado State University and a former Fed researcher, told ABC News that “GDP has slowed quite significantly,” but acknowledged the new findings have limitations.
“We need to be careful about using quarterly data to panic,” Weiler added.
The Commerce Department said this week that gross domestic product (GDP), a measure of all goods and services produced in an economy, grew at an annual rate of 1.6% in the first three months of this year.
This figure marked a significant slowdown from the annualized rate of 3.4% measured in the final quarter of last year. The economy cooled more than economists expected in the first three months of 2024.
Consumer spending, which accounts for nearly three-quarters of U.S. economic activity, has slowed significantly compared to the final months of 2023, the data showed.
The slowdown appears to be due in part to lower personal savings rates, suggesting many Americans have used up much of the financial cushion they built during the pandemic.
“Consumers are the backbone of this economy,” Weiler said. “And personal savings is the key.”
Still, economists said the overall cooling in GDP caused little alarm because the trend was largely due to a widening gap between imports and exports, according to Commerce Department data.
The gap weighs on GDP growth because imports do not originate from U.S. production, but economists say purchases from abroad indicate U.S. consumption remains strong. Stated.
Luke Tilley, chief economist at investment firm Wilmington Trust, told ABC News: “Sturdy foreign imports are a sign that consumer and business spending is strong.”
In response to a question about the health of the U.S. economy, Tilley added: “I'm not worried at all.”
Although economic growth slowed earlier this year, it remained strong, coinciding with stubborn inflation. Economists said the sharp rise in prices could delay the Federal Reserve's interest rate hikes, which are expected to stimulate the economy.
Consumer prices rose 3.5% year-on-year in March, accelerating markedly from the previous month and reversing some of the progress achieved in a two-year battle to rein in price increases.
Brett Kenwell, U.S. investment analyst at eToro, told ABC News in a statement that the new GDP report will raise eyebrows because the economy is already facing challenges from inflation.
“It's not necessarily a report to panic about, but it's a report to be aware of,” Kenwell said. “It's one thing to have moderate inflation with above-average growth; it's another thing to have stubborn inflation and suppressed growth.”
The federal funds rate is between 5.25% and 5.5%, comparable to its highest level since 2001. High interest rates make borrowing more expensive for consumers and businesses, putting downward pressure on the economy.
Under its so-called “dual mandate,” the Federal Reserve retains responsibility for keeping inflation at normal levels and achieving maximum employment.
Some experts say a cooling economy in early 2024 brings signs of hope, as further slowdowns and potential layoffs could trigger interest rate cuts, even if inflation remains stubborn. Ta.
“This GDP report could move the Fed closer to cutting rates, but it would be far better for the Fed to do so because of lower inflation than because of concerns about the economy,” Kenwell said.