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  • Writer's pictureRealFacts Editorial Team

US GDP Slows As PCE Remains Hot


GDP

Thursday and Friday's release of key economic and inflation data left investors feeling less confident about the likelihood of the Fed cutting rates in the near future. On Thursday, the Bureau of Economic Analysis released first-quarter GDP (gross domestic product) data, which showed a significant slowdown compared to prior quarters. In Q1, the U.S. economy expanded by 1.6%, falling short of the forecasted 2.3% growth and significantly lower than the 3.4% pace recorded in Q4. The decline in GDP growth can be attributed to several factors, including increased imports and reduced government spending. Net exports of goods and services was reduced due to increased imports which subtracted 0.35% from overall GDP growth. Additionally, the government's contribution to GDP growth decelerated to 0.2% from a range of 0.5% to 1% observed over the previous six quarters.


In addition to slowing GDP, the commerce department reported hotter than expected inflation data for Q1. The Federal Reserve's key measure of inflation, the core PCE (personal consumption expenditures) price index, increased by 3.7% annually which surpassed expectations of 3.4%. This followed two consecutive quarters of mild 2% annualized inflation, which is near the Fed's target inflation rate. Additionally, the headline PCE price index, which incorporates food and energy prices, climbed by 3.4% in Q1 compared to 1.8% in Q4.


Following this quarterly report, specific PCE numbers for March were released on Friday. In March, the index increased by 0.3% with 2.7% annual increase, slightly above the forecasted 2.6%. The core PCE price index also rose by 0.3%, which was not as concerning as anticipated based on quarterly data. There were market concerns that the core 12-month inflation rate would increase for the first time since late 2022, but it remained steady at 2.8%.


The increase in the Fed's key inflation data proved concerning for investors and partly contributed to a small market sell-off early on Thursday. However, Investors Business Daily author Jed Graham points out a reason why investors shouldn't be too alarmed by this data. He said, “Here's one reason not to panic, though: The price for portfolio management and investment advice services surged at a 31.8% annual rate in Q1. If not for that, the core PCE price index would have climbed 3.2%.” This increase in portfolio management and investment advice closely correlates with rises in the S&P 500 and accounted for the majority of the jump in PCE.


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