Economics Weekly April 29, 2024
GDP slows on disappointing trade figures
The Q1 2024 GDP figures came in weaker than expected at 1.6% on an annualized basis, compared to a Wall Street forecast of 2.5%. This was well below the 3.4% recorded for Q4 2023. A bigger than expected trade deficit and a reduction in inventories acted as a drag on growth. Also, GDP figures are ‘real’ (i.e. they are adjusted for inflation) and a higher mark down for inflation was used more than many economists had expected. On the positive side, domestic consumption, while down from the previous quarter, held up reasonably well. There were also encouraging signs on business investment. Normally, a cooling GDP figure would count towards a Fed Funds Rate cut. However, because of the evidence of higher inflation, the Fed may view the data as another reason to leave rates unchanged.
Personal Consumption Expenditures (PCE) inflation rose to 2.7% in March, which was higher than the 2.5% recorded in February and ahead of the 2.6% Wall Street was predicting. This is the latest in a sprint of data pointing to the revival of price pressures in the economy. Also, there were media reports last week that some investors are speculating that the next move for the Fed Funds Rate might actually be an increase – defying the widely held assumption that at some point this year a rate cut is coming. While we believe the figures on growth and inflation make talk of a rate hike premature, it is now looking unlikely there will be a cut in the Fed Funds Rate for several months– perhaps towards the end of the year.
This week’s big economic news event will be Wednesday’s interest rate announcement from the Federal Reserve. The most likely outcome will be no change, and the financial markets will be closely monitoring the accompanying statement and the press conference for clues on how policymakers now view the outlook for the interest rates and inflation. Also, Friday will see labor market figures released, which have been stronger than expected in recent months.
Things to watch for this week
Wednesday, May 1
US Federal Reserve Rate Decision, May
Previous: 5.25%-5.5%
Forecast: 5.25%-5.5%
It is a near certainty there will be no change at this meeting, and attention will be focussed on the comments at the subsequent press conference.
Friday, May 3
Non-Farm Payrolls, April
Previous: 303k
Forecast: 220k
After a punchy jobs growth figure in March, we are expecting some deceleration in April. However, the 220,000 increase we are forecasting is still relatively strong.
Unemployment Rate, April
Previous: 3.8%
Forecast: 3.8%
Given the ongoing momentum in the labor market we are expecting the unemployment rate to remain unchanged at what is already a low level by historic standards.