February 27, 2024

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The US economy grew less in the last quarter than previously thought

The US economy grew less in the last quarter than previously thought

New York (CNN) The US Commerce Department reported Thursday that the US economy grew at an annual rate of 2.7% in the last three months of the year. This is less than Previous estimate growth of 2.9% in the quarter.

A slow increase in gross domestic product, which is a broad measure of economic activity, could be a sign that The Federal Reserve’s series of higher interest rates The increases have a greater impact than previously thought.

Other recent economic readings, including very strong ones January jobs report And strong A rebound in retail salessuggesting that the Fed could do more to try to beat inflation by raising interest rates with the goal of slowing the economy.

the The latest Fed rate hike Earlier this month it was just a quarter of a percentage point, the smallest increase in its record rate in nearly a year.

While the slower pace of overall growth may sound like good news to those who believe the Fed should continue to be slow in raising interest rates going forward, the report also contained some bad news on the inflation front.

The index that measures prices paid for personal spending, known as the Personal Consumption Expenditure Price Index, rose 3.7% in the quarter, up from the 3.2% reading in the preliminary report. The so-called personal consumption expenditures deflator, another closely watched inflation measure of consumer spending in the report, rose to 3.9% from 3.5% previously.

The biggest news [in the GDP report] “Inflation was, still hotter than the Fed would like,” said PNC chief economist Joss Foucher. Upward revisions to fourth quarter inflation support further increases in the federal funds rate in the near term. This, in turn, means more pressure on the economy from higher rates in the second half of 2023.”

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The PNC says the Fed’s large rate hikes since early last year could lead to a recession later in 2023.

“The recession should be moderate, however, given the current strength of the labor market, the strength of consumer balance sheets, and the balanced housing market,” Foucher said.

Foucher said the slightly lower GDP reading compared to a preliminary estimate a month ago was due to downward revisions to consumer spending and exports.

However, both the PCE price index and the deflator are far from the pace of price increases in previous quarters. The PCE price index peaked at 7.5% in the first quarter of last year, while the PCE deflator reached 9% in the second quarter. After the Fed got aggressive with rate hikes that quarter, the drop in inflation readings showed that the Fed had some influence.

Jobs remain strong

Also Thursday: First-time unemployment insurance claims fell to 192,000 for the week ended Feb. 18, according to data from the Labor Department.

That’s down 3,000 from the previous week’s upwardly revised total of 195,000.

Economists were expecting 200,000 initial jobless claims, according to Refinitiv consensus estimates.

Continuing claims, filed by people who received unemployment benefits for more than a week, fell to 1.654 million for the week ending Feb. 11, from 1.696 million in the previous week. Economists expected 1.7 million.

Despite layoffs in some sectors such as technology, media and the mortgage industry, the US labor market remains strong, with roughly two jobs available for every job seeker as companies remain reluctant to let go of workers.

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“Although reports of layoffs are becoming more common, these layoffs have yet to show up in unemployment insurance data,” Stewart Hoffman, PNC’s chief economist, wrote Thursday. “Some of this may be timing: If the company offers to terminate, claims will not be processed until the termination expires. But even so, the job market remains remarkably strong.”

However, layoffs remain low across the broader economy, and job growth remains strong.

In January, the US economy added 517,000 jobs – employment growth that far exceeded economists’ expectations for a slowdown – and the unemployment rate fell to 3.4%, a level not seen since May 1969.

Nancy Vanden Houten, chief US economist at Oxford Economics, said in a statement that the tight labor market will keep the Fed on track to raise interest rates at its March meeting.

“We expect jobless claims to trend higher as the economy slows in response and eventually enters a mild recession later this year,” she wrote. “But the uptick may be muted compared to previous recessions as employers will be reluctant to lay off hard-to-find workers in the first place.”

Unemployment claims are one of the government’s more real-time economic readings, while the GDP report, especially this month’s revision and next month’s final estimate of fourth-quarter growth, are among the lowest of the current readings that economists and investors are watching closely.

Correction: An earlier version of this story incorrectly reported the quarter measured by the latest GDP report. I reported in the fourth quarter.

CNN’s Alicia Wallace contributed to this report