Final values for US first-quarter GDP and core PCE expenditures both slightly revised upwards

The U.S. GDP slowed in the first quarter, but economic growth is expected to rebound in the second quarter.

On June 27, the U.S. Department of Commerce released final data showing that the actual GDP for the first quarter of the United States had an annualized quarter-on-quarter growth rate of 1.4%, a slight increase of 0.1 percentage points from the revised value of 1.3%, and a slowdown from the 3.4% in the fourth quarter of last year, marking the slowest growth rate in nearly two years.

In terms of inflation, core PCE expenditures were slightly revised upward, while PCE expenditures slowed significantly.

Specifically, PCE expenditures in the first quarter had an annualized quarter-on-quarter growth rate of 1.5%, lower than the expected and previous value of 2%, indicating that high interest rates may be affecting the economy.

The final value of core PCE expenditures excluding food and energy rose by 3.7% on an annualized quarter-on-quarter basis, a slight increase of 0.1 percentage points from the previous value of 3.6%, and a significant increase from 2% in the fourth quarter of last year.

After the data was released, the 2-year Treasury yield fell by nearly 1 basis point to 4.739%; U.S. stock futures remained relatively unchanged.

Is the GDP slowdown temporary?

After releasing a series of strong economic data, the U.S. GDP growth slowed in the first quarter.

The report shows that the slowdown in the first quarter was mainly due to two factors, namely a surge in imports and a decrease in business inventories, with imports reducing growth by 0.82 percentage points and inventory reduction dragging down GDP growth by 0.42 percentage points.

However, the market expects that the GDP growth rate will slightly accelerate in the second quarter, with most forecasts indicating that the U.S. economic growth rate will rise to around 2%.

Oxford Economics' U.S. economist Matthew Martin estimates that, driven by continued consumer spending in the United States, the GDP growth rate in the second quarter will be around 2%, with the Atlanta Fed's forecasting tool showing a growth rate as high as 3%.

However, unless the Federal Reserve cuts interest rates to lower borrowing costs for individuals and businesses, economic growth is not expected to accelerate significantly. Since July 2023, U.S. interest rates have remained at their highest level in twenty-three years.

Previously, Federal Reserve Governor Bauman took a hawkish stance, stating that there are multiple upward risks to inflation and no rate cuts are expected in 2024