GDP Growth Expected at 2.4%, With Strong Consumer Spending

Key Takeaway

• U.S. GDP expected to grow at a 2.4% annualized rate in Q1, slightly down from Q4's 3.4% but still solid.
• Forecasts vary, with EY-Parthenon predicting 2.6%, Atlanta Fed's GDPNow at 2.7%, and Goldman Sachs optimistic at 3.1%.
• Growth driven by strong labor market, consumer spending, and rebounds in residential investment and manufacturing activity.

U.S. Economic Growth in Q1

The U.S. economy is expected to have expanded at a 2.4% annualized growth rate in the first quarter of 2024, according to Dow Jones consensus forecasts. This marks a slight decrease from the 3.4% growth rate in the fourth quarter of 2023 and is just below last year's full-year growth rate of 2.5%. Despite this slight deceleration, the economy demonstrates solid progress, outpacing the 2.2% average growth rate experienced between the 2008-09 financial crisis and the Covid pandemic. EY-Parthenon chief economist Gregory Daco suggests the economy might have grown at a 2.6% pace, driven by consumption and parts of the housing sector. The labor market's resilience is seen as a key factor supporting robust income growth and consumer spending.

Labor Market and Consumer Spending

The labor market shows signs of cooling, with modestly slower labor demand indicated by hiring rates, hours worked, and job growth diffusion. However, there is no alarming retrenchment that could negatively impact future income trends or consumer spending. The Atlanta Federal Reserve's GDPNow tracker predicts a 2.7% growth rate, while Goldman Sachs forecasts a more optimistic 3.1% growth, attributing it to a sharp rise in residential investment, a rebound in auto production and manufacturing activity, and another quarter of strong consumption growth. Goldman expects consumption to rise by an above-consensus 3.3%, driven by gains in core retail spending and significant upward revisions in March retail sales data.

Inflation and GDP Projections

The upcoming GDP report will also include data on the personal consumption expenditures prices price index, a key inflation reading for the Federal Reserve, expected to show a 3% quarterly increase. This data is crucial for understanding inflationary pressures within the economy and their potential impact on future Federal Reserve policy decisions. The GDP price index is anticipated to reflect a 3% quarter-on-quarter annualized surge, an acceleration from the 1.7% recorded in the fourth quarter of 2023.

Street Views

• Gregory Daco, EY-Parthenon (Bullish on the U.S. economy):

  "The U.S. economy is still very resilient, supported by a solid labor market that continues to support robust income growth and in turn, consumer spending activity... We are seeing a little bit of cooling in terms of the consumer spending momentum. Nothing dramatic."

• Spencer Hill, Goldman Sachs (Bullish on the U.S. economy):

  "Goldman expects consumption to rise an above-consensus 3.3%, driven by a 1.1% gain in core retail spending and big upward revisions in the March retail sales report from the Commerce Department."