The U.S. economy is likely to expand steadily in the first three months of the year, perhaps even better than Wall Street forecasts, but still below strong levels seen at the end of 2023. The economy is huge, with an estimated annualized growth rate of 2.4% in the first quarter. If that estimate is accurate, it would mark a decline from the 3.4% growth rate in the fourth quarter of 2023 and be just shy of last year’s full-year growth rate of 2.5%. However, it still reflects solid economic progress and is ahead of the 2.2% average growth seen during the 2008-09 financial crisis and the COVID-19 pandemic that began in early 2020. This in turn supports consumer spending activity. “We’re seeing a slight cooling in consumer spending momentum. Nothing dramatic.” Daco expects the economy to actually grow at 2.6%, slightly above consensus, as consumption and parts of the housing sector still struggling to catch up with demand are the drivers . Supporting the optimistic outlook is the belief that the labor market remains strong and will help drive consumer spending, which drove more than two-thirds of activity in the fourth quarter. “We’re seeing some signs that the labor market is starting to cool down,” Darko said. “We’re seeing a slight slowdown in demand for labor. You can see it in hiring rates, you can see it in hours worked, in This was also seen in the spread of job growth in the jobs report, but there was no change of any kind. While the growth outlook for Daco was more optimistic than the consensus, there were other indicators suggesting GDP growth could be larger. Reserve’s GDPNow tracking incoming data showed solid accuracy, especially closer to the date when the Commerce Department actually released its report, with the data showing growth of 2.7%, with Goldman noting that the Atlanta Fed indicator was above consensus. The forecast growth rate is 3.1%, which is a full percentage point lower than in the second half of 2023 but well above the street view in the first quarter, Goldman Sachs economist Spencer Hill said in a report. The forecast is based on four “key factors,” including a “significant increase” in residential investment, a rebound in auto production and manufacturing activity, and “another quarter of strong growth in consumption.” Goldman Sachs predicts that consumption will grow by 3.3%, higher than market expectations, driven by a 1.1% increase in core retail spending and a substantial upward revision of the Department of Commerce’s March retail sales report. The GDP report will be released at 8:30 a.m. ET on Thursday and will also include data on the personal consumption expenditures price index, the Fed’s key inflation reading, as well as a “quarter-weighted” price index, which is expected to show quarterly growth. 3%.
