Economic Growth Slows as Consumer Spending Eases Amid High Inflation

Slowdown in Economic Growth in Early 2024

Economic growth in the U.S. slowed more sharply than initially estimated in the first quarter of 2024. The U.S. gross domestic product (GDP), adjusted for inflation, grew at a 1.3 percent annual rate, a significant drop from the 3.4 percent growth in the final quarter of 2023. This was also below the 1.6 percent growth rate reported in the preliminary first-quarter estimate. The revised data, which includes more complete information, indicates a more pronounced slowdown than initially believed.

Consumer Spending and Underlying Demand

Consumer spending rose at a 2 percent annual rate in the first quarter, down from 3.3 percent in the previous quarter and 2.5 percent in the preliminary data. Measures of underlying demand were also revised down, reflecting a cooling economy. An alternative measure of economic growth based on income rather than spending showed a decrease to 1.5 percent from 3.6 percent in the fourth quarter of 2023. Despite these revisions, the economy remains fundamentally sound, supported by resilient consumer spending, rising incomes, and a strong job market with low unemployment and increasing wages.

Inflation and the Fed’s Response

Inflation continues to be a significant challenge, with consumer prices rising at a 3.3 percent annual rate in the first quarter. This rate, though slightly slower than the preliminary data, is still well above the Federal Reserve’s target of 2 percent. In response, policymakers have raised interest rates to their highest levels in decades and plan to maintain them until inflation shows further signs of cooling. The modestly slower growth reflected in the latest data is unlikely to change the Federal Reserve’s approach. The Fed will receive a more up-to-date snapshot of the economy with the release of April’s inflation, income, and spending data on Friday.