In the first quarter of 2024, the US economy experienced a significant slowdown, with Gross Domestic Product (GDP) growing at a rate of 1.6% annually. This deceleration was influenced by several factors including high interest rates and import growth that reduced first-quarter GDP by nearly 1 percentage point. Consumer spending, the main driver of economic growth, remained solid with a 2.5% annual rate increase.
Despite the overall economic slowdown, consumer spending continued to be a bright spot in the economy. However, inflation accelerated at an annual rate of 3.4%, with core inflation reaching 3.7%. This rise in inflation put pressure on consumers and businesses alike.
The Federal Reserve's efforts to combat inflation through interest rate hikes contributed to the economic slowdown, as evidenced by the deceleration in GDP growth from the previous quarter's 3.4% rate. The Commerce Department reported that imports were a significant contributor to this decline, reducing first-quarter growth by nearly 1 percentage point.
Despite these challenges, some sectors of the economy continued to perform well. For instance, consumer spending remained solid and even saw an increase of 2.5% annually. Fixed investment and government spending also helped keep GDP positive on the quarter.
However, concerns about inflation persisted as the Personal Consumption Expenditures price index rose at a 3.4% annualized pace, above the Federal Reserve's target of 2%. This increase in prices was felt across various sectors, with spending on goods declining by 0.4% and services spending increasing by 4%, its highest quarterly level since Q3 of 2021.
The tech sector also faced challenges as Meta Platforms (Meta) shares plummeted 11.34% following weak revenue guidance for the second quarter. This decline was felt across other tech giants such as Microsoft, Alphabet, and Amazon.
Despite these economic challenges, it is important to note that there are diverse perspectives on the current state of the economy and its future trajectory. Some analysts remain optimistic about the long-term prospects for growth while others express concerns about ongoing inflationary pressures.
