US economic growth slows more than expected in Q1 at 1.6%

The International Monetary Fund last week upgraded its forecast for 2024 US growth to 2.7% from the 2.1% projected in January, citing stronger-than-expected employment and consumer spending.

US economic growth slowed more than expected in the first quarter, but an acceleration in inflation suggested that the Federal Reserve would not cut interest rates before September.

Gross domestic product increased at a 1.6% annualized rate last quarter, the Commerce Department’s Bureau of Economic Analysis said in its advance estimate of first-quarter GDP on Thursday. Growth was largely supported by consumer spending.

Economists polled by Reuters had forecast GDP rising at a 2.4% rate, with estimates ranging from a 1.0% pace to a 3.1% rate. The economy grew at a 3.4% rate in the fourth quarter. It is expanding at a pace above what US central bank officials regard as the non-inflationary growth rate of 1.8%.

The International Monetary Fund last week upgraded its forecast for 2024 US growth to 2.7% from the 2.1% projected in January, citing stronger-than-expected employment and consumer spending. Job gains in the first quarter averaged 276,000 per month versus the October-December quarter’s average of 212,000.

The economy has defied prophecies of doom since late 2022 following the Fed’s aggressive rate hiking campaign to stamp out inflation. The United States is outperforming other advanced economies. Consumers locked in lower mortgage rates, while businesses refinanced debt before the tightening cycle began, economists say.

Meanwhile, the number of Americans filing new claims for unemployment benefits unexpectedly fell last week, pointing to still tight labor market conditions.

Initial claims for state unemployment benefits dropped 5,000 to a seasonally adjusted 207,000 for the week ended April 20, the Labor Department said on Thursday.

Economists polled by Reuters had forecast 215,000 claims in the latest week. Claims have been bouncing around in a 194,000-225,000 range this year.

Companies are hoarding workers after experiencing difficulties finding labor during and after the Covid-19 pandemic, and are enjoying higher profit gains because of strong pricing power. Low layoffs are keeping wage growth elevated, sustaining consumer spending, which accounts for more than two-thirds of economic activity.

The number of people receiving benefits after an initial week of aid, a proxy for hiring, declined 15,000 to 1.781 million during the week ending April 13, the claims report showed.

The so-called continuing claims data covered the period during which the government surveyed households for April's unemployment rate. Continuing claims fell between the March and April survey periods. The unemployment rate slipped to 3.8% in March from 3.9% in February.