Adjustments to estimates made earlier in the year show that the U.S. economy is indeed slowing closer to expectations that were previously held.
The Commerce Department released data on May 30 showing that the U.S. economy grew at a slower rate than previously expected. Q1 2024 Gross Domestic Product (GDP) growth estimates were revised downward to 1.3% from 1.6%, the Commerce Department reported. This points to an even larger slow down from the 3.4% recorded for Q4 2023.
In particular, consumer spending growth was revised downward a half point to 2.0% at an annualized rate. Household spending weakened, and durable goods purchases such as automobiles fell to levels not seen since Q3 2021.
Further confirmation of a cooling economy could come as early as May 31, when the Bureau of Economic Analysis will release the Personal Consumption Expenditures Index. Market Watch reports that analysts are expecting the PCE Index to come in at 0.3% for April, with some expecting a drop to 0.2%. If the PCE Index does come in as expected, it would be an indicator that the economy could stand an interest rate drop by the end of 2024.
There has already been a signal that the economy has reacted to the Federal Reserve maintaining higher interest rates. The Bureau of Labor Statistics Consumer Price Index released on May 15 shows CPI raising 3.4% year-on-year in April, which is down from 3.5% for multiple months previously.
The revisions bring the pace of inflationary growth closer to expectations that were held at the beginning of the year. Bureau of Labor Statistics CPI data in February show that overall CPI rose 0.3% in January on a seasonally adjusted basis. Analysts had expected a 0.2% rise, and the market has been anxious about interest rate changes since then.
International comparisons
The increased prospect of an interest rate cut brings the U.S. in line with other major economies. Before Prime Minister Rishi Sunak announced that there would be a general election in the U.K. on July 4, the Bank of England openly discussed the likelihood of an interest rate cut this summer. Now that the election has been called, BoE cannot continue to talk publicly about the prospect of a drop. However, Sunak has already been promising interest rate cuts if he wins.
