As the week unfolds, investors are eagerly awaiting the impending release of the U.S. gross domestic product growth rate for the first quarter of 2024, set for this Thursday, ahead of the highly anticipated Personal Consumption Expenditure (PCE) price index report - the Fed's preferred inflation gauge - on Friday.
The U.S. economy showed a robust 3.4% growth rate in the last quarter of 2023, following another spectacular 4.9% growth in the third quarter, according to the final estimates from the Bureau of Economic Analysis.
Q1 2024 GDP: What Do Economists Expect?
- Wall Street analysts are forecasting a deceleration in growth, with expectations set around a 2.5% increase in GDP, adjusted annually, from the previous quarter. "That would be the seventh consecutive solid reading for real GDP. That certainly isn't a hard landing and hardly a soft one," veteran investor Ed Yardeni commented in a note.
- Among key GDP components, real consumer spending is predicted to advance at a 2.8% pace in Q1 2024, slowing down from the 3.3% in the fourth quarter of 2023.
- The Atlanta Fed GDPNow forecasts a 2.9% surge. The model suggests that real personal consumption expenditures and first-quarter real gross private domestic investment are expected to grow at 3.4% and 3.7%, respectively.
- The GDP price index is expected to show a 3% quarter-on-quarter annualized surge, marking an acceleration compared to the 1.7% recorded in Q4 2023.
Goldman Sachs economist Spencer Hill presents a more optimistic view, projecting a 3.1% growth rate. This forecast exceeds the consensus by 0.6 percentage points and edges out the Atlanta Fed's expectations by 0.2 points. Key factors underpinning this upbeat forecast include:
- A significant 13% quarterly annualized increase in residential investment, fueled by lower mortgage rates, spurring sales and construction.
- A robust recovery in auto production, contributing an additional 0.2 percentage points to GDP growth.
- A resurgence in manufacturing, likely to enhance capital expenditures on equipment and structures.
- Continued strong consumer spending, supported by significant upward revisions to March retail sales data that the consensus may have underestimated.
The forecast suggests a 2.4% expansion in Q2, with an average growth rate of 2.5% for the second half of the year.
This outlook is supported by high levels of immigration, robust real personal income growth, and a modest uplift from financial conditions.
Why It Matters For Traders
A stronger-than-expected Q1 GDP result may reinforce the perception of a resilient U.S. economy capable of withstanding high interest rates, potentially keeping the Federal Reserve focused on controlling inflation.
This could positively impact the U.S. dollar, while possibly leading to downward pressure on bonds and rate-sensitive sectors like real estate and technology.
Conversely, a GDP figure below expectations might prompt closer examination of how inflationary pressures are impacting consumer spending. This scenario could weaken the dollar, as reduced spending may lessen the likelihood of persistently high interest rates in the future. In such a case, bonds and gold could be positioned for a rally.
In the last advance estimate for Q4 2023 GDP, released on Jan. 25, the U.S. economy expanded by 3.3%, exceeding forecasts of a 2% increase. On that day, the SPDR S&P 500 ETF Trust (NYSE: SPY) saw a 0.5% rise.