June 13, 2024

How cooling U.S. GDP growth affects the global economy

The Department of Commerce released revised data for year-over-year gross domestic product Thursday, and growth is looking even more meh than economists and analysts predicted. The updated first-quarter number came in at 1.3%, down slightly from the initial estimate released last month.

But we aren’t feeling the slack only in the U.S. Some economies abroad may also be a bit subdued. That may be in part because when you look at global GDP, the U.S. accounts for nearly a quarter of it, by some estimates.

When GDP is up and the U.S. economy is strong, Americans buy lots of stuff from all over the world. Goods like “a Portuguese wine or a Swiss chocolate,” said Tatevik Sekhposyan of Texas A&M University. But when our economy isn’t doing too well, our major trading partners feel the pain.

“I used to work in Canada, so there they would say, ‘When the U.S. sneezes, Canada catches a cold.’ Because the U.S. is a major export partner for Canada,” Sekhposyan said.

But just how serious that cold can be depends on what’s being traded and how much of it. Erik Lundh with The Conference Board said the softer GDP numbers could signify some sniffles.

“Consumer debt levels are up, savings are down, pandemic savings are gone, inflation remains high, interest rates remain high,” Lundh said.

As U.S. consumers second-guess their spending, China, a major exporter, could feel the pinch. 

“Slower demand growth from the U.S., coupled with what appears to be higher tariffs coming potentially out of the [Joe] Biden administration, these are all problems from sort of the Chinese perspective,” he said.

In addition to U.S. GDP data, there are other indicators the rest of the world should watch too, said David Wilcox with the Peterson Institute and Bloomberg Economics.

“The U.S. economy has averaged adding about 240,000 jobs per month. And that’s still indicative of a really healthy and robust jobs market,” Wilcox said.

He said you could even think of slower GDP growth as the cooling the U.S. economy needs. 

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