Economic slowdown! US first-quarter GDP and PCE growth rates both significantly revised downwards

US GDP and PCE growth rates significantly revised downwards in the first quarter.

On May 30th, revised data released by the US Department of Commerce showed that the actual annualized seasonally adjusted GDP growth rate for the first quarter was 1.3%, down 0.3 percentage points from the initial value of 1.6%, and a significant slowdown from the 3.4% in the fourth quarter of last year.

The downward revision in economic growth is mainly due to lower-than-expected consumer spending. As the main engine of the US economy, personal consumption expenditure (PCE) growth rate in the first quarter was revised significantly downwards.

Specifically, PCE in the first quarter grew at an annualized seasonally adjusted rate of 2%, down 0.5 percentage points from the initial value of 2.5%, lower than the expected 2.2%.

In terms of inflation, the PCE price index, which is favored by the Federal Reserve, increased by 3.3% on an annualized seasonally adjusted basis in the first quarter, slightly lower than the initial forecast. The core PCE price index, excluding food and energy, rose by 3.6%, down 0.1 percentage points from the initial value of 3.7%, and a significant increase from 2% in the fourth quarter of last year.

Meanwhile, the GDP price index in the first quarter rose by 3.0%, down 0.1 percentage points from previous estimates.

After the data was released, the futures of the three major US stock indexes rose slightly, with Nasdaq futures narrowing losses to 0.11% and S&P 500 index futures falling by 0.24%; US Treasury bonds edged up slightly, with the 30-year bond yield declining by over 3 basis points and the 10-year bond yield falling by approximately 5 basis points.

Under high interest rates, the US economy may continue to decline

Compared to the fourth quarter of last year, the actual GDP growth rate in the first quarter slowed down, mainly due to a significant weakness in spending on goods (especially automobiles), consumer spending data being revised downwards; exports and government spending slowed compared to preliminary estimates. However, residential investment and imports showed some recovery.

GDP may rebound in the second quarter. The latest forecasts indicate that economic growth in the second quarter may reach 3% or higher, similar to the last two quarters of 2023.

However, analysts believe that even if GDP rebounds in the second quarter, the US economy is unlikely to show strong momentum in the second half of the year.

Consumers have had to dip into savings to maintain their current spending levels, and persistent inflation has weakened their purchasing power; the upcoming presidential election has also led some businesses to adopt a wait-and-see attitude towards spending and investment High corporate borrowing costs have been suppressing economic growth. It is widely expected that the Federal Reserve will keep key short-term interest rates near a 23-year high until inflation further slows down.

Tuesday, the Fed's hawks poured cold water on rate cut expectations. Neel Kashkari, the President of the Minneapolis Fed who will have voting rights at the FOMC meetings of the Federal Reserve in 2026, stated that the Fed's policy stance is restrictive, but Fed policymakers have not completely ruled out the possibility of further rate hikes