The U.S. economy defied expectations in the first quarter of 2024, continuing a climb of steady growth despite challenges and headwinds from rising interest rates and inflation. While the climb slowed a bit from the growth of the previous quarter, a revised estimate shows a solid 3.4% annual expansion for the final three months of 2023. This marks the sixth consecutive quarter with growth exceeding 2%, a true testament to the resiliency and strength of the American economy.
Growth Drivers and Easing Inflation
Consumer spending remained a key driver of growth, fueled by a combination of factors. A strong job market meant Americans had more spending money in their wallets, while a slight dip in inflation offered some relief on household budgets. Exports also played a role in driving the growth, suggesting continued international demand for American goods and services. Business investment in areas such as software and buildings further bolstered the expansion.
Inflation pressures, a top concern for the Federal Reserve, showed some signs of moderation throughout 2023. The government's preferred inflation measure, the personal consumption expenditures price index, grew at a 1.8% annual rate in the fourth quarter. This figure represents a notable decline from the 2.6% increase seen just three months prior and marks the lowest inflation level since 2020. Removing volatile food and energy prices, core inflation remained flat at 2% for the final quarter of 2023.
Balancing Act: Growth and Inflation
The economy's resilience has come as a surprise to many economists, particularly given the aggressive interest rate hikes implemented by the Fed. Since March 2022, the Fed has raised its benchmark rate 11 times, aiming to curb inflation without triggering a recession. This balancing act appears to be yielding some positive results. Job growth continues at a robust pace, with an average of 265,000 new jobs added per month between December and February. While inflation remains above the Fed's 2% target, its downward trajectory offers hope for a "soft landing" – controlling inflation without triggering an economic downturn.
Looking ahead, the focus will be on the upcoming first-quarter GDP estimate on April 25th. This report will provide further insights into the trajectory of economic growth as we move deeper into 2024.
