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Bureau of Economic Analysis figures released Thursday showed that gross domestic product rose 1.3% year-on-year in the first three months of the year, lower than the previous estimate of 1.6%. The economy’s main growth engine, personal spending, increased by 2.0%, versus the previous estimate of 2.5%.
Loss of momentum in the US economy
The numbers confirm the loss of momentum at the beginning of 2024 after continued upward surprises in 2023. High interest rates, declining savings in the era of the pandemic, and slowing income growth are the main factors affecting US households and companies.
The downward revision to consumer spending was partially offset by strong investment in business and residential. The leading indicator of core domestic demand known as final sales to private domestic buyers rose 2.8%, versus an initially reported increase of 3.1%.
Economists have pointed to the strength of this indicator as a reason to believe that demand remains strong even if the headline GDP figure looks weak in comparison.
Gross domestic income
Along with its second estimate of GDP, the Bureau of Economic Analysis also publishes data on gross domestic income, the other main indicator of economic activity. Gross domestic income rose 1.5% in the first quarter, according to the report. GDP measures spending on goods and services, while GDP measures the income generated and costs incurred from producing the same goods and services.
GDP data includes figures on corporate profits. In the first quarter, adjusted earnings before taxes fell 0.6%, the first decline in a year. After-tax profits as a share of gross value added by non-financial companies, a measure of gross profit margins, changed only 15.2%.
On the inflation front, the most closely monitored measure rose earlier Federal Reserve Bank, an index of personal consumption expenditures prices, rose at an annual rate of 3.3% in the first quarter, slightly lower than initially expected. Excluding food and energy, the core personal consumption expenditures index rose 3.6%, compared to the previous estimate of 3.7%.
Growth in disposable personal income rose to 1.9%, compared to 1.1% in initial estimates. This may bode well for consumer spending and GDP in the future.
Personal consumption expenditures
Economists are looking forward to the release of monthly personal consumption expenditures data for April, scheduled to be released by the Bureau of Economic Analysis on Friday, after reports published earlier this month showed a stall in retail sales growth and a slowing pace of increases in consumer prices at the start of the second quarter.
New merchandise trade numbers for April suggest there is little room for improvement in the second quarter. Separate data released on Thursday showed that the gap in goods trade last month widened to its widest level since May 2022.
Meanwhile, initial claims for unemployment benefits did not change significantly in the last week, settling at low levels.
