Bad surprises in the United States. Growth for the first quarter turned out to be less strong than expected. However, at the same time, inflation is exceeding expectations. Even if the performance of the American economy continues to make people jealous in Europe, the double disappointment of the start of the year makes the rosy “soft landing” scenario, combining a fall in inflation with growth, less likely. solid.
The Commerce Department calculates that the gross domestic product (GDP) of the United States, from January to March, grew, at an annual rate, at 1.6%, while economists expected 2.5%. The deterioration of the trade balance and a weaker consumption slowed down the expansion.
At the same time, underlying inflation, measured by the index of personal consumption expenditure, excluding energy and food products, amounts to 3.7%, and not 3.4% as we anticipated it. We are therefore very far from the return to 2%, the objective of the American central bank, which was briefly reached at the end of 2023.
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Furthermore, spending on services, particularly in health, accelerated at a rate of 4% between January and March, which supports activity. On the other hand, consumption of goods, particularly in automobiles, fell 0.4%. In this context, the decline in savings, which began in the second quarter of 2023, continues. The American savings rate thus fell to 3.6%, compared to 4% at the end of last year.
The markets reacted poorly to this news. The bond market concludes that, given the resilience of inflation, the Federal Reserve has one more reason not to lower its key rate, which is at its highest in 23 years, before September. Stock markets are suffering as the prospect of high interest rates for months increases the risk of recession and falling corporate profits.
President Biden’s electoral narrative is also affected as growth plunges from a high rate of 3.4% at the end of 2023, to a mediocre 1.6% at the start of 2024. Voter discontent with still painful price increases, including the Democratic candidate is suffering in the polls, could worsen if the marked slowdown in activity is confirmed.