MNI BRIEF: US 1Q GDP Below Expected; Core PCE Inflation 3.7%
Inflation heated up in the first quarter while growth slowed.
U.S. GDP grew at an annual rate of 1.6% in the first quarter, slowing from 3.4% in the fourth quarter and well below Wall Street expectations for a 2.5% increase, while inflation picked up by more than expected, the Bureau of Economic Analysis said Thursday. Traders priced in slightly less easing by the Federal Reserve after the data, now expecting just 36 bps of cuts through the end of the year.
Consumer spending decelerated to 2.5% from 3.3% the previous quarter, below expectations, and final sales to private domestic purchasers slowed to 3.1% from 3.3%. Exports slowed to 0.9% from over 5% the last two quarters of 2023, dragging down headline GDP by 0.9pp. Both federal and state and local government spending decelerated. Partly offsetting those slowdowns were residential fixed investment and imports.
The PCE inflation rate rose to 3.4% in the first quarter, above the 1.8% rate seen in the fourth quarter of 2023. Excluding food and energy, core PCE inflation was 3.7%, up from 2.0%. The first-quarter increase in core PCE reflected an increase in services -- led by housing -- that was partly offset by a decrease in goods, the BEA said. (See: MNI INTERVIEW: Kaplan Says Loose Fiscal Is Holding Up Fed Cut)