May 30, 2024

GDP, Inflation Highlight Week of Economic Data | Economy

In what is likely to be a busy week on the political and economic fronts, investors and economists will learn how strong the U.S. economy is at the moment as well as how persistent inflation is becoming.

While the political world is focused on the opening remarks in former President Donald Trump’s criminal trial over hush money payments to a porn star and fallout from House Speaker Mike Johnson’s support for a Ukraine aid package, the main events on the economic front will be on Thursday with the first estimate of growth in the nation’s gross domestic product in the first quarter and a key inflation measure watched closely by the Federal Reserve,

Estimates for GDP growth are around 2.9% to 3.1%, following the fourth quarter’s 3.4% gain. Continued strong consumer and government spending are expected to have driven growth higher.

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“Real GDP growth likely slowed in the advance estimate for the first quarter after a 3.4% annualized increase in the fourth quarter of 2023,” Comerica Bank economists Bill Adams and Waran Bhahirethan wrote on Monday morning, “Residential investment likely pulled back in the first quarter, led by lower multifamily homebuilding.”

“Spending by consumers and by federal, state and local governments were likely tailwinds to growth,” they added. “Businesses’ investments in nonresidential fixed investment and inventories were likely tailwinds to real GDP in the quarter as well.”

Also on Thursday, the personal consumption price expenditures index for March is released with that expected to show inflation increased at a 0.3% monthly rate.

The core index, taking out food and energy costs, is the one favored by the Fed and that is expected to have increased at a 2.7% annual rate, considerably above the central bank’s 2% target.

“Firmer inflation at the start of the year has extended the journey back to the Fed’s 2% target,” said Sam Bullard, managing director and senior economist at Wells Fargo’s corporate and investment banking unit. “Looking ahead, we expect inflation to resume its downward trend, though the progress will be more of a grind as compared to last year.”

“Rising prices of food and energy-related commodities look to limit additional improvement in headline inflation in the near term,” Bullard added. “Core goods deflation is likely to fade as the year progresses now that supply chain issues have largely unwound. Services inflation should continue to cool as labor costs growth moderates. All told, core PCE inflation is likely to look sticky when measured on a year-ago basis in 2024, though we expect to see renewed progress toward the Fed’s 2% target in the months to come.”

If that forecast holds, it will confirm the expectation in the market that the Fed will not be cutting interest rates when it meets at the end of the month and may well be on hold with higher rates until later in the year.

The effect of the highest interest rates in two decades is showing up in a diminished appetite for new mortgages and will be a factor in new home sales for March. That data is out on Tuesday, with estimates for a slight increase as better weather prevailed in the month. Pending home sales, a reflection of homebuyer demand, will come on Thursday and there the forecast is for a dip in activity.

On Friday, the University of Michigan final read of April consumer sentiment is released. Little change is expected from what has been a generally flat, but positive, trend over the past few months.

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