US Economic Growth Slows to 1.6% in Q1

The US economy’s gross domestic product (GDP) growth slowed to 1.6% in the first quarter of 2024, significantly down from 3.4% in the last quarter of 2023, according to the National Retail Federation‘s (NRF) May edition of its Monthly Economic Review. This marked the lowest growth rate since the second quarter of last year when the economy expanded by 2.1%.

Despite this slowdown, consumers continued to spend more than they did the previous year. NRF’s chief economist Jack Kleinhenz noted that while the pace of economic expansion decelerated, the economy remains resilient due to a strong job market and ongoing spending by consumers and businesses.

“Even with signs that the economic expansion is decelerating, the economy remains resilient, boosted by a solid job market and continued spending by consumers and businesses,” Kleinhenz said.

However, inflation continues to be a concern. The Personal Consumption Expenditures (PCE) Price Index, a key measure followed by the Federal Reserve, showed that year-over-year inflation, driven mainly by rising service prices, increased to 3.4% in Q1 from 1.8% in the previous quarter. This lingering inflation has contributed to the Federal Reserve’s cautious approach toward interest rate changes.

Consumer spending, despite cost pressures, remains robust. Although growth in consumer spending fell from 3.3% in Q4 to 2.5% in Q1, it still indicates resilience in the face of economic uncertainty. Total retail sales, reported by the US Census Bureau, rose 4% year-over-year in March, a significant increase from the 2.1% recorded in February.

The NRF suggests that this continued consumer spending, along with a strong labour market, “solid” job growth, and rising wages, portrays an overall positive picture for the US economy. However, wage gains, while supporting spending, are not welcomed by Federal Reserve officials who aim to contain inflation pressures. 

The Fed decided to leave interest rates unchanged in its latest meeting due to high inflation, suggesting that a rate cut expected in June might now be delayed. Kleinhenz stated that with the labour market still rebalancing and economic growth remaining steady, the Fed is likely to push out any easing of interest rates for some time.

Overall, the latest economic data suggests that while the US economy is slowing down, it continues to show signs of resilience, supported by consumer spending and a solid labour market. However, the persistence of inflation remains a challenge for policymakers as they navigate the path forward.