Economic Trends Defy Predictions as GDP Edges Up | Episode 149 | 06-27-24

In our latest podcast episode, we delve into the surprising uptick in the first quarter GDP for 2024, which has defied expectations and sparked a wave of cautious optimism. This third reading showed a slight increase to 1.4%, up from the previous estimate of 1.3%. This unexpected growth has left many economists and analysts scratching their heads, trying to decipher the mixed signals sent by various economic indicators.

One of the key components of this GDP report is personal consumption, which, despite being the largest part of GDP, came in lower than expected. Initially estimated to rise by 2% for the quarter, it only increased by 1.5%. This weaker-than-expected consumer spending is a significant factor, as it reflects the overall economic health and confidence of the general public. Consumers are the backbone of the economy, and their spending habits directly influence GDP growth. The lower personal consumption indicates that despite the uptick in GDP, there is underlying weakness that could pose challenges in the coming months.

Another critical aspect discussed in the episode is the core Personal Consumption Expenditures (PCE) price index, which is the Federal Reserve's favored measure of inflation. The core PCE price index was revised up to 3.7% for the quarter, from an earlier estimate of 3.6%. This mixed inflation reading presents a dilemma for the Fed, as it tries to balance stimulating economic growth while keeping inflation in check. Higher inflation rates can erode purchasing power and savings, making it a critical factor for both policymakers and consumers.

So we've gotten that third reading on first quarter GDP this morning. It is Thursday, June the 27th, and we typically get many different variations of the quarterly GDP report. This morning we got the third reading on this and what we saw was the actual number for GDP for the first quarter came in a little bit better than expected. The second reading was 1.3% and it actually came in at 1.4%. Some of the changes there were there was actually less spending on goods, less spending on services as well to some extent there was more CAPEX spending. It was less of a net export drag than they had originally reported in the second report and there was a bit more state and local government spending. Now, when we look into the details of this report from a personal consumption component remember that's the biggest part of GDP Personal consumption actually came in much lower than what they had originally put in the second reading. The expectation, or the estimate, was that personal consumption was up 2% for the quarter, but it actually was only up 1.5%.

The other thing that we've been looking closely at is that inflation component of the GDP, your core PCE price index, and remember that this originally came out very hot. They did revise it down to 3.6% for the quarter, but actually now that got moved back up to 3.7% for the quarter. So mixed inflation reading here for the Fed weaker consumer. We've known that the consumer has been weak to start off in 2024. We're also seeing from the expectation for the second quarter GDP that from the 1.4% is actually going to rise 2% in the second quarter. We still think that is a little optimistic, especially since we've continued to see the weakness in the consumer.

The housing data has been very weak. Manufacturing is still contracting. So the one thing that we'll be looking at is the CapEx numbers that we get for the month to try and get a better indication for second quarter GDP. That's all we have. We'll actually be back later this afternoon when we will get some information on the CapEx reading here for the month of May and then we'll be back tomorrow with the, the PCE indicator, which is the Fed's preferred inflation gauge. Thank you very much.