The U.S. economy likely expanded at a solid pace in the first three months of the year and perhaps even better than Wall Street expects, while still below the robust level at the close of 2023. Gross domestic product, the sum of all goods and services produced across the sprawling U.S. economy, is expected to post a 2.4% annualized growth rate for the first quarter, according to the Dow Jones consensus forecast. If that estimate is accurate, it would mark a step down from the 3.4% growth rate in the fourth quarter of 2023 and just a touch less than last year’s 2.5% full-year growth rate. However, it would still reflect an economy showing solid progress and ahead of the 2.2% average rate in the years between the 2008-09 financial crisis and the Covid pandemic that began in early 2020. “The U.S. economy is still very resilient, supported by a solid labor market that continues to support robust income growth and in turn, consumer spending activity,” EY-Parthenon chief economist Gregory Daco said. “We are seeing a little bit of cooling in terms of the consumer spending momentum. Nothing dramatic.” Daco expects the economy actually grew at a 2.6% pace, slightly ahead of the consensus, as consumption and parts of the housing sector, which is still trying to catch up to demand, act as driving factors. Underpinning the optimistic outlook is a belief that the labor market is still holding up and helping propel consumer spending, which drove more than two-thirds of all activity in the fourth quarter. “We are seeing some signs that the labor market is starting to cool,” Daco said. “We’re seeing modestly slower labor demand. You can see that in the hiring rate, you can see that in the hours worked, you can see that in the diffusion of job growth in the payrolls report. But there isn’t any form of retrenchment that would be alarming in terms of future income trends and in terms of future consumer spending trends.” While Daco’s outlook for growth is more bullish than the consensus, there are other indicators that GDP gains could be even greater. The Atlanta Federal Reserve’s GDPNow tracker of incoming data, which has shown solid accuracy particularly as it gets closer to the actual Commerce Department release date of the report, is indicating a 2.7% rate. Noting the above-consensus level of the Atlanta Fed indicator, Goldman Sachs is forecasting a growth rate of 3.1%, which it notes is a full percentage point below the second half of 2023 though well above the Street view for the first quarter. The bank’s forecast is based around four “key factors,” including a “sharp rise” in residential investment, a rebound in both auto production and manufacturing activity and “another quarter of strong consumption growth,” Goldman economist Spencer Hill said in a note. Goldman expects consumption to rise an above-consensus 3.3%, driven by a 1.1% gain in core retail spending and big upward revisions in the March retail sales report from the Commerce Department. The GDP report will be released at 8:30 a.m. ET Thursday and will also include data on the personal consumption expenditures prices index, a key inflation reading for the Fed, as well as the “chain-weighted” price index, which is expected to show a 3% quarterly increase.
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