Evening Brief – 03.25.24
Respectable
The US economy remains on course to deliver a respectable growth rate in the upcoming first-quarter GDP report, but momentum is slowing. The Atlanta Fed GDPNow model estimates that the first quarter of 2024 will see a 2.1% increase in real GDP growth, down from 2.3% in March 2024. If right, the small gain will represent another slowdown in growth from the significant 3.2% increase in the fourth quarter of 2023.
A 2.1% increase in GDP is comfortably over the level that would signal recession risk, but the directional bias shows that economic activity is slowing, albeit on the margins. The crucial question is whether the softening trend will stabilize at or near current levels or deteriorate further in the coming months.
Last week’s PMI survey results showed a similar trend of somewhat slower growth. The US PMI Composite Output Index (a GDP proxy) fell marginally to 52.2 in March from 52.5 in February. Both data points are just above the neutral 50 level, which distinguishes expansion from contraction. The most recent data continues to show “a solid monthly improvement in business activity at US companies,” according to S&P Global, the publisher of the PMI data.
Perhaps the Federal Reserve’s willingness to lower interest rates later this year, notwithstanding recent stubborn inflation headlines, reflects a knowledge that economic momentum is fading and that the current policy rate is too high to keep output continuing higher.
Despite the slower trend in US economic activity, the likelihood of stalling or worsening is modest. This is due in part to the US labor market’s continued resiliency. The most recent weekly jobless claims, for example, show a continuous upward trend as new filings for unemployment benefits fell, approaching a multi-decade low.
“The labor market is gradually rebalancing, but the adjustment appears to be coming from less hiring rather than a surge in firings,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics. “We expect job growth to slow somewhat but the unemployment rate to remain low this year.”