US Q1 GDP slows to 1.6%, misses estimates

US Q1 GDP: The US economy saw a modest annualised expansion of 1.6 per cent in Q1 2024, down from 3.4 per cent in the preceding quarter and falling short of the projected 2.5 per cent, according to the advance estimate of gross domestic product released by the Commerce Department's Bureau of Economic Analysis on Thursday. 

This marks a second consecutive quarterly slowdown and represents the lowest growth rate since the contractions experienced in the first half of 2022, according to the advance estimate.

The indication of a decelerating US economy suggests the need for earlier-than-anticipated adjustments to interest rates.

Economists, surveyed by Reuters, had projected a range of GDP growth rates from 1.0 per cent to 3.1 per cent, indicating the uncertainty surrounding economic performance. The fourth quarter had seen a stronger expansion, with the economy growing at a 3.4 per cent rate.

Despite the first-quarter moderation, the economy remains on a trajectory exceeding the non-inflationary growth rate of 1.8 per cent as identified by US central bank officials. The International Monetary Fund recently revised its 2024 growth forecast upward to 2.7 per cent, citing robust employment and consumer spending. Monthly job gains averaged 276,000 during the first quarter, surpassing the previous quarter's average of 212,000.

Consumer spending slowed to 2.5 per cent from 3.3 per cent, primarily driven by a decline in goods consumption (-0.4 per cent vs. 3 per cent), while spending on services accelerated to 4 per cent from 3.4 per cent. 

Non-residential investment also moderated to 2.9 per cent from 3.7 per cent, mainly due to a decrease in structures, although investment in equipment rebounded to 2.1 per cent from -1.1 per cent, and investment in intellectual property products accelerated to 5.4 per cent from 4.3 per cent. 

Looking ahead, government spending increased at a much slower rate (1.2 per cent vs. 4.6 per cent), and exports experienced a sharp deceleration (0.9 per cent vs. 5.1 per cent), while imports surged (7.2 per cent vs. 2.2 per cent). 

Meanwhile, private inventories subtracted 0.35 percentage points from growth compared to -0.47 percentage points previously. Conversely, residential investment surged at a double-digit pace of 13.9 per cent compared to 2.8 per cent previously.

Since late 2022, the US economy has continued to outperform expectations, defying concerns following the Federal Reserve's aggressive interest rate hikes aimed at curbing inflation. This resilience has been attributed to various factors, including consumers capitalizing on lower mortgage rates and businesses restructuring debt ahead of the tightening cycle.

(With Reuters inputs)