BY LUCIA MUTIKANI
WASHINGTON- US economic growth likely slowed to a still-solid pace in the first quarter while inflation accelerated, reinforcing financial market expectations that the Federal Reserve would delay cutting interest rates until September.
The Commerce Department’s snapshot of first-quarter gross domestic product on Thursday is expected to show consumers still doing the heavy lifting for the economy, thanks to a resilient labor market. The economy has defied prophecies of doom since late 2022 following the US central bank’s aggressive rate hiking campaign to snuff out inflation.
The United States is outperforming other advanced economies. Consumers locked in lower mortgage rates, while businesses refinanced debt before the tightening cycle began, economists say. Companies are also hoarding workers after experiencing difficulties finding labor during and after the COVID-19 pandemic, and are enjoying higher profit gains because of strong pricing power.
“They have been relatively insulated from the rate increases,” said Richard de Chazal, macro analyst at William Blair. “In past economic cycles, at the first whiff of an economic slowdown, companies in the US used to fire workers very quickly and then they knew that they could hire them back very quickly once the cycle turned.”
Gross domestic product likely increased at a 2.4 percent annualized rate last quarter, according to a Reuters survey of economists. Estimates ranged from a 1.0 percent pace to a 3.1 percent rate. The economy grew at a 3.4 percent pace in the fourth quarter.
It is expanding at a pace above what Fed officials regard as the non-inflationary growth rate of 1.8 percent . The International Monetary Fund last week upgraded its forecast for 2024 US growth to 2.7 percent from the 2.1 percent projected in January, citing stronger-than-expected employment and consumer spending.
Job gains in the first quarter averaged 276,000 per month compared to the October-December quarter’s average of 212,000.
Labor market resilience is likely to be underscored by the Labor Department’s weekly jobless claims report, which is expected to show first-time applications for unemployment benefits climbing 3,000 to a seasonally adjusted 215,000 in the week ending April 20. Initial claims have bounced around in a 194,000-225,000 range this year.
Low layoffs are keeping wage growth elevated, sustaining consumer spending, which accounts for more than two-thirds of economic activity.
Though inflation probably surged, with the personal consumption expenditures (PCE) price index excluding food and energy forecast increasing at a 3.4 percent rate after rising at 2.0 percent pace in the fourth quarter, economists were not worried about a resurgence in price pressures.
The so-called core PCE price index is one of the inflation measures tracked by the Fed for its 2 percent target. The central bank has kept its policy rate in the 5.25 percent -5.50 percent range since July. It has raised the benchmark overnight interest rate by 525 basis points since March of 2022.
