U.S. Economy & Market Update Q1 2024
U.S. Economy
In the first quarter of 2024, the U.S. economy grew at an annualized rate of 1.6%, the slowest pace since 2022, as a widening trade deficit and inventory buildup tempered overall growth. Consumer spending rose by 2.5%, down from 3.3% in the previous quarter, with reduced spending on motor vehicles and gasoline offset by increases in healthcare and financial services.
The trade deficit widened to $973.2 billion from $918.5 billion in Q4, subtracting 0.86 percentage points
from GDP growth. The slowdown in inventory accumulation subtracted 0.35 percentage points.
Government spending decelerated to a 1.2% pace from 4.6% in Q4, with declines in defense spending at
the federal level.
Business spending picked up, particularly in artificial intelligence investments, while residential investment
recorded its fastest growth since Q4 2020 due to rising home sales and construction despite higher
mortgage rates. However, nonresidential structures, like factories, contracted due to the fading impact of
government policies encouraging semiconductor manufacturing.
Policymakers remain focused on controlling inflation while fostering growth, as rising prices and taxes
eroded disposable income gains. Real disposable income grew by 1.1%, down from a 2.0% pace in Q4.
The savings rate fell to 3.6% from 4.0%, highlighting the risk inflation poses to near-term consumption.
Federal Reserve, Inflation, and Employment
The Federal Reserve is navigating a challenging economic environment as inflation remains elevated and the labor market shows resilience. According to Reuters, the core Personal Consumption Expenditures (PCE) price index, which excludes volatile food and energy prices, rose at an annualized rate of 3.7% in Q1 2024, up from 2.0% in Q4 2023. This rise was driven mainly by higher costs for services like transportation, insurance, and housing, although it was offset by lower prices for goods.
Employment data signaled continued strength in the labor market, with initial jobless claims falling to
207,000. Continuing claims also decreased to 1.781 million, indicating steady hiring levels and a likely
consistent unemployment rate of around 3.8%. The labor market’s robustness continues to support
consumer spending, which accounts for more than two-thirds of U.S. economic activity.
Despite global economic headwinds, the U.S. economy continues to outperform other advanced nations.
The Treasury Department highlighted robust job gains in recent months as businesses remain confident
in their hiring plans, even as some sectors face economic uncertainties.
In her recent speech, Federal Reserve Governor Michelle Bowman acknowledged the challenges of
achieving the dual mandate of maximum employment and stable prices. After its meeting on May 1, the
Federal Open Market Committee (FOMC) decided to hold the benchmark interest rate steady within the
5.25%-5.50% range. The FOMC noted that inflation remains elevated and that labor market conditions
are strong, reinforcing the need for a cautious and measured approach to monetary policy. The Fed remains ready to act if economic data show a significant shift in conditions, prioritizing its long-term goals of reducing inflation to the 2% target while maintaining a robust labor market.
U.S. Stock Market
In the first quarter of 2024, the U.S. stock market displayed resilience amid slowing GDP growth and persistent inflation. Despite these challenges, both the S&P 500 and Nasdaq Composite indices delivered strong gains, buoyed by the Federal Reserve’s steady monetary policy and corporate earnings.
The S&P 500 rose by more than 10% during the quarter, primarily driven by gains in technology, communication services, financials, and industrial sectors. These industries benefited from expectations of continued stability in interest rates and broader economic recovery. The tech-heavy Nasdaq Composite index surged to a record high of more than 9%, reflecting optimism among investors for technology-driven business models which are higher margin and lighter on the use of labor and materials.
Investor sentiment initially wavered due to economic headwinds, including slowing GDP growth and persistent inflation. However, the Federal Reserve’s supportive stance, signaling no immediate rate hikes, prompted rallies across equity markets. Technology stocks led this rally, underscoring confidence in techdriven growth despite supply chain challenges and rising input costs. Corporate earnings also remained a key driver, with many companies exceeding expectations.
The yield on the benchmark 10-year Treasury was at approximately 4.72% as of the end of Q1, up from 3.86% at the end of last year. Despite the increase in Treasury yields, stocks managed to remain steady this quarter, unlike in 2023 when rising yields put tremendous pressure on equities.
Data Sources: U.S. Census Bureau, U.S. Chamber of Commerce, U.S. Department of the Treasury, U.S. Bureau of Labor Statistics, CBRE Research, CBRE Econometric Advisors, Bloomberg, Reuters, Schroders, WSJ.com, Zillow Group, Redfin, S&P Global, CNN Business, CBS News, World Economic Forum, The Conference Board & Deloitte Insights
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Email: Client-Relations@grandway.com
