Consumer spending is slowing, dragging down the economy. (iStock)
of Second estimate According to the Bureau of Economic Analysis (BEA), the forecast for real gross domestic product (GDP) for the first quarter of 2024 has been revised downward due to a larger-than-expected decline in consumer spending.
BEA’s second estimate showed real GDP grew at an annualized rate of 1.3% in January-March, following a 3.4% increase in the fourth quarter of 2023. The figure is lower than the BEA’s initial GDP estimate for the first quarter, which showed the economy expanding at 1.6%.
The decline compared to the previous quarter primarily reflected slowing consumer spending, exports, state and local government spending and a decline in federal government spending. The slowdown was partially offset by an acceleration in residential fixed investment. Thursday’s report confirms that the economy is slowing, marking the slowest quarterly pace in nearly two years, said Jim Baird, chief investment officer at Plante Moran Financial Advisors.
“The slowdown in momentum in the first quarter unsurprisingly began with consumers tempering their spending habits,” Baird said in a statement. “Spending on goods turned slightly negative, with particular weakness in durable goods. Rising interest rates continue to have an impact as borrowing costs become an additional hurdle consumers must consider before financing big-ticket purchases. This is most evident in auto sales, which saw a fourth consecutive quarter of declines.”
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Consumer confidence recovers
Consumer confidence had been declining for the past three months but recovered in May, helped by a strong labor market. The Conference Board Consumer Confidence Index The consumer confidence index rose to 102 in May from 97.5 in April. The index outperformed the University of Michigan consumer confidence index, which was last at 69.1, down from 77.2 in April.
“Confidence improved in May after three consecutive months of declines,” Dana Peterson, chief economist at the Conference Board, said in a statement. But the overall confidence index remains stuck within a relatively narrow range that has been depressed for the past two years.
The report found that consumers expect inflation to rise over the next 12 months, with the percentage of consumers who expect interest rates to rise over the course of the year rising from 55.2% to 56.2%. The survey also found that recession fears may be rekindled, with more consumers saying a recession is “somewhat likely” or “very likely.”
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Housing costs fuel inflation
Housing inflation (rent and homeownership costs) continues to grow at an overall April InflationIt rose 0.4% in April and is up 5.5% over the past year. More than half of the economy-wide inflation is driven by rising housing costs.
National Association of Home Builders (NAHB) It said in a statement The only way to curb rising home prices is to build more available, affordable housing. A lack of housing supply is the primary reason homeownership is out of reach for many Americans and home price inflation remains high.
“A housing shortage is the primary cause of home affordability,” said NAHB Chairman Carl Harris. “Policies that attempt to improve home affordability without addressing the need to increase the supply of single-family and multifamily homes for sale and rent are doomed to fail.”
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