Labor market robust
US economy is losing pace
April 25, 2024, 5:22 p.m
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The economy in the USA started the new year weaker than expected. However, economists do not see this as a trend reversal. In addition, the labor market remains solid.
The world’s largest economy is sending surprising signals at the start of the year. Accordingly, growth was significantly weaker than expected. In the first quarter, the gross domestic product (GDP) in the USA rose by an annualized 1.6 percent compared to the previous quarter, as the Department of Commerce in Washington announced. In the fourth quarter, the world’s largest economy grew at twice the rate of 3.4 percent. Analysts had expected an average rate of 2.5 percent at the start of the year.
LBBW economist Dirk Chlench tried to appease. The development “does not provide a template for economic pessimism”. He referred to private domestic demand, which grew at an annual rate of 3.1 percent – albeit weaker than at the end of the previous year. The strength of the US economy is once again surprising.
For Bastian Hepperle from Hauck Aufhäuser Lamp Bank, the US economy “continues to show a high level of resilience to the tight regime of monetary policy.” But the time of “exuberant real income growth is likely to be over and the savings boxes have largely been plundered. Private households will therefore put on shorter spending pants. A slower pace of growth is planned for the summer half of the year.”
Labor market continues to show no weakness
US growth figures are annualized, i.e. extrapolated to the year. They indicate how much the economy would grow if the pace were to continue for a year. This method is not used in Europe, which is why the numbers are not directly comparable. To get a growth rate comparable to Europe, you would have to divide the US rate by four. Mathematically, this would result in a value of 0.4 percent.
The International Monetary Fund recently raised its growth forecast for the US economy. He therefore expects an increase of 2.7 percent this year. The driving forces are growing productivity and strong domestic demand.
At the same time, fewer people in the USA have filed initial applications for unemployment benefits. Last week, the number of applications for aid fell by 5,000 to 207,000, according to the US Department of Labor. On average, economists had expected an increase to 215,000 applications. The number of applications for aid remains at a comparatively low level, which indicates a robust labor market. The weekly initial claims are considered a timely indicator for the labor market.
The US Federal Reserve also takes the situation on the labor market into account because this can affect consumer prices. It left key interest rates at a high level until recently.