US luxury consumption growth, trade deficit widening, low-income class tension, inflation ‘return’
The United States' first quarter economic indicators revealed tensions among low-income households in restoring inflation due to the growth of luxury consumption and the expansion of the trade deficit.
The U.S. Department of Commerce announced on the 25th that gross domestic product (GDP) increased at an annual rate of 1.6% in the first quarter of this year, and core prices excluding the highly volatile food and energy categories rose at an annual rate of 3.7%.
U.S. media outlets pointed out that growth had fallen sharply from 3.4% in the fourth quarter of 2023, falling far short of forecasters' expectations, and that inflation had shown resilience.
Financial markets fell that day, the S&P 500 index fell about 50 percentage points and Treasury yields rose as investors expected borrowing costs to remain high.
The tensions in U.S. first-quarter economic data were particularly severe for low-income families.
Reuters said: “The U.S. economy shrank nearly in the first quarter amid surging imports, a small increase in unsold goods from companies, and strong demand signs that, along with accelerating inflation, have strengthened expectations that the Federal Reserve will not cut interest rates before September. “It grew at the slowest pace in two years,” he said on the 25th.
The New York Times said of the increase in U.S. spending in the first quarter, “Spending was particularly driven by wealthy consumers, who were protected from the impact of rising interest rates by low debt and fixed-rate mortgages, and until recently benefited from a record-breaking stock market.” “It was revealed on the 25th that ‘consumption is led by the wealthy, who are beneficiaries of high interest rates, and stocks are booming.’
“The recent stickiness of inflation poses a downside risk to the near-term outlook for consumption as it could weigh on real disposable income,” Ryan Sweet, chief economist at Oxford Economics, told Reuters.
“The underlying economy appears strong, but is slowing compared to last year’s unexpectedly fast pace,” Gregory Daco, chief economist at tax consulting firm EY, said of the first quarter results. “The economic momentum is cooling down due to ‘signals of solid demand’ from American consumers,” he told the AP.
He concluded on the 25th, "While it is unlikely that there will be major tightening, economic momentum is likely to cool further as consumers scrutinize their spending more closely."
Regarding the expansion of the trade deficit, Reuters said, “Inventories decreased by $35.4 billion in the first quarter of this year from an increase of $54.9 billion in the fourth quarter, deducting 0.35 percentage points from the GDP growth rate.” “Part of the expenditure was covered by imports, so the trade deficit decreased in the fourth quarter of last year.” “Trade expanded from $918.5 billion to $973.2 billion in the first quarter of this year, falling 0.86 percentage points from GDP growth,” he said.
AP said, “The U.S. growth rate slowed sharply to 1.6% in the last quarter, reflecting the economic pressure caused by high interest rates.”
Regarding GDP growth, Reuters said, “Government spending slowed from 4.6% in the fourth quarter of last year to 1.2% in the first quarter of this year due to a decrease in federal government spending such as defense spending and an increase in corporate spending due to companies’ investments in artificial intelligence.” “Investment in the same non-residential structures fell for the first time in more than a year as the Biden administration’s policy stimulus to bring semiconductor manufacturing production back to the United States fades,” it said.
“It raises the possibility of a harder landing,” Constance L. Hunter, an economist at economic forecasting firm MacroPolicy Perspectives, told the NYT about the first-quarter data. “The inflation data was a surprise.” said in
“This is a huge change because a sudden ‘longer, higher interest rate’ could mean another rate hike,” said Diane Swonk, chief economist at KPMG. “The Fed is currently stuck in ‘monetary policy purgatory,’” she told NYT. said to
NYT said, “Some forecasters believe that policymakers will not only keep interest rates ‘higher and longer,’ as investors have been expecting for weeks, but may actually raise rates further,” adding, “At the very least, the Fed will face ‘stubborn inflation.’” “It is highly likely that we will wait until at least the fall to begin lowering interest rates.”
The NYT said, “It’s not just investors who could suffer if interest rates remain high, but there are signs that high borrowing costs are weighing on Americans’ financial health,” adding, “Consumers saved only 3.6% of their after-tax income in the first quarter. “Savings have decreased from 4% at the end of last year and more than 5% before the pandemic,” he said, revealing the spread of anxiety among consumers.
“There is a sense that there are more and more low-income households now,” Andrew Husby, senior U.S. economist at BNP Paribas, told the NYT.
“High-income households are very flush,” said Brian Rose, senior economist at UBS, in response to the U.S. first quarter economic data. “They feel they can continue to spend because they have seen the value of their homes and the value of their portfolios rise significantly.” It was told to NYT.
The NYT said, “Low-income people are increasingly turning to credit cards to cover their expenses, and because interest rates are high, more people are falling behind on their payments. But despite these pressures, consumer spending shows no signs of cooling overall.” “Almost invisible, spending in the first quarter increased at an annual rate of 2.5%, slowing slightly compared to the end of 2023, but spending on services such as travel and entertainment actually accelerated,” it said.
The NYT said, “Taken together, the first quarter data is the latest evidence that the Fed's efforts to tame inflation have reached a stalemate, and that financial markets' celebration of an apparent 'soft landing' or 'gentle slowdown' in the economy was premature." He said.
Regarding the construction economy, Reuters said, “Residential investment recorded its fastest growth rate since the fourth quarter of 2020, driven by increases in home sales and home construction despite high mortgage rates.”
In Korea's construction industry, construction investment soared 2.7% despite the real estate recession, the highest in the first quarter indicators, and private consumption increased 0.8%.