US GDP grew at a 1.6 percent annualized rate in the first quarter of 2024. This is significantly lower than the 3.4 percent growth in the fourth quarter of 2023. The major components of the slowdown are declines in net exports and changes in inventories, as well as a deceleration of the growth of government spending. Excluding these categories, the remainder of the economy grew at a rate of 3.1 percent. Consumer spending on goods and services increased at a rate of 2.5 percent, although spending on durable goods, like vehicles and home appliances, were down over the previous quarter.
Many are closely watching the GDP numbers for hints as to whether the Federal Reserve will raise or lower interest rates. The Fed has raised the baseline interest rate by more than 5 percentage points since 2022 in an effort to slow the growth of inflation. While the inflation rate is down significantly over the past two years, it did tick up again this quarter, suggesting that the Fed would be unlikely to lower rates any time soon.
Discussion Questions:
- What is the spending multiplier? How would a reduction in government spending affect GDP if the household savings rate declined at the same time?
- How does raising or lowering the interest rate affect economic growth?
Sources| Reuters: https://www.reuters.com/markets/us/us-economic-growth-slows-more-than-expected-first-quarter-2024-04-25/; Unsplash: Photo by Kajetan Sumila on Unsplash