Real GDP (Q1-2024, advance estimate)

Q1 GDP comes in lower than expected, but details show a resilient economy 

• Real GDP expanded by 1.6% quarter-over-quarter (q/q, annualized) in the first quarter of 2024 – below the consensus forecast of 2.5%.  
• Consumer spending expanded by 2.5% – a modest deceleration from last quarter's 3.3% gain. Service spending (+4.0%) accounted for all of last quarter's gain, while spending on goods (-0.4%) was flat.
• Non-residential business investment expanded by 2.9%, with gains seen across equipment (+2.1%) and intellectual property products (+5.4%). Residential investment (13.9%) rose by its fastest pace in over three years, alongside a sharp rebound in new & existing home sales.
• Government consumption & gross investment rose 1.2%, with state & local spending up 2.0% while federal spending (-0.2%) was flat. 
•  Next exports shaved 0.9 percentage points (pp) from growth, as a modest uptick in exports (+0.9%) was eclipsed by a sharp gain in imports (+7.2%). 
• Inventory investment was also a net drag on growth, shaving 0.4 pp from GDP. 
• Core PCE inflation rose 3.7% (q/q, annualized) – a sharp acceleration from the 2% gain seen through H2-2023.

Key Implications

• The advance estimate of first quarter GDP showed the U.S. economy having downshifted relative to the strong pace of growth averaged through the second half of last year. That said, net exports and inventory investment were a sizeable drag on Q1 growth and helped to mask some of the underlying strength. Importantly, domestic demand (i.e., the sum of consumption, fixed investment, and government expenditures) expanded by a still strong 2.8% and showed only a modest deceleration from last quarter's gain of 3.6%. 
• Consumer resilience is likely to remain a key driver supporting economic growth over the near-term. Job gains remain plentiful and have shown little indication of slowing. This is helping to support aggregate gains in household income and providing a sustained tailwind to consumer spending. Tomorrow's release of the March personal income and spending data will give a better sense of the monthly spend pattern in Q1, but for now, it looks like spending momentum has carried over into Q2. Our current tracking has real GDP growth holding steady in the 1.5%-2% range in the second quarter.  

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