The United States economy is anticipated to have grown at a steady pace during the first three months of this year, possibly surpassing Wall Street expectations. The Dow Jones consensus forecast predicts a 2.4% annualized growth rate for the first quarter in terms of gross domestic product (GDP), which represents the value of all products and services generated within the country’s vast economic system. If this estimate proves accurate, it would indicate a moderate decline from the 3.4% expansion rate recorded in the fourth quarter of 2023 and fall just short of last year’s full-year growth rate of 2.5%. Nevertheless, it would still demonstrate consistent economic development, outperforming the average rate of 2.2% observed between the 2008-09 financial crisis and the COVID-19 pandemic’s onset in early 2020. Gregory Daco, EY-Parthenon’s chief economist, commented, “The U.S. economy continues to display resilience, buoyed by a strong labor market which sustains robust income growth and, in turn, consumer spending activity. Although we are witnessing some cooling in consumer spending momentum, it remains far from drastic.”
Daco anticipates economic growth to reach 2.6%, slightly above the consensus estimate, driven by consumption and sectors of the housing industry that are striving to meet demand. This optimistic outlook stems from the belief that the labor market remains robust and continues to fuel consumer spending, which accounted for over two-thirds of overall economic activity in the fourth quarter. “We are observing indications that the labor market is beginning to moderate,” Daco stated. “Labor demand is showing signs of modest deceleration. This is evident in hiring rates, hours worked, and the diffusion of job growth in the payrolls report. However, there is no evidence of a pullback that would raise concerns about future income or consumer spending trends.”
While Daco’s growth projection exceeds the consensus, other indicators suggest that GDP gains could be even higher. The Atlanta Federal Reserve’s GDPNow tracker, which has demonstrated a high degree of accuracy, particularly as it approaches the Commerce Department’s official report release date, is currently estimating a 2.7% rate. Goldman Sachs, taking note of the Atlanta Fed indicator’s above-consensus level, has forecast a growth rate of 3.1%, which it acknowledges is a full percentage point below the second half of 2023 but significantly higher than the consensus for Q1. The bank’s projection is based on four “key factors”: a “sharp rise” in residential investment, a rebound in both auto production and manufacturing activity, and “another quarter of strong consumption growth,” according to Goldman economist Spencer Hill. Goldman anticipates consumption to increase by an above-consensus 3.3%, fueled by a 1.1% rise in core retail spending and significant upward revisions in the Commerce Department’s March retail sales report.
The GDP report is scheduled for release at 8:30 a.m. ET on Thursday and will also provide information on the personal consumption expenditures prices price index, a key inflation metric for the Fed, and the “chain-weighted” price index, which is anticipated to show a 3% quarterly increase.
