US Economy Performs Below Expectations – Wealth Managers React

Amanda Cheesley Deputy Editor April 26, 2024

US Economy Performs Below Expectations – Wealth Managers React

After the US economy performed below expectations in the first quarter of 2024 and grew at a slower rate than in the fourth quarter of last year, wealth managers discuss the impact.

US real gross domestic product climbed at an annualized rate of 1.6 per cent in the first quarter of 2024, according to the advance estimate released by the US Bureau of Economic Analysis on Thursday.

This was lower than the consensus estimate among economists of 2.4 per cent and indicates a slower yet still positive growth rate than in the fourth quarter of 2023, when real GDP increased by 3.4 per cent.

Here are some reactions from wealth managers to the figures.

Nathaniel Casey, investment strategist at UK wealth manager Evelyn Partners
“Despite consumption remaining strong, inventory accumulation was subdued, subtracting 0.4 percentage points from the figure. However, if consumers keep spending and consumption remains strong, we expect this will increase during the coming quarters as businesses look to replenish stock. A narrowing in net exports took 0.9 percentage points off the headline figure, while government expenditure added 0.2 percentage points.

"The key positive came from personal consumption. Once again, the US consumer remained resilient over much of the quarter, regardless of the heightened interest rate environment. The robust labor market is a vital reason behind the resilient consumer and why US growth is more generally holding up. Despite the rapid hiking of interest rates, the unemployment rate remains low. Core personal consumption expenditures (PCE), the US Federal Reserve’s preferred measure of inflation came in at 3.7 per cent, exceeding forecasts of 3.4 per cent and up from Q4’s reading of 2 per cent. Markets have reined in their rate cut expectations for 2024, with less than two cuts now priced in for this year.”

Daniele Antonucci, chief investment officer at Quintet Private Bank, parent of Brown Shipley
“After a series of significant upside surprises in many key US indicators, we finally have some evidence that the US economy, while healthy, is decelerating. Having said that, the fact that GDP growth in the first quarter surprised to the downside isn’t a reason to expect imminent and significant Fed rate cuts. For that to happen, we likely need more evidence in other areas, from signs that the labor market is cooling to a string of inflation releases showing a moderation. 

“But there’s no sign of this just yet. The US strong-growth exceptionalism appears to be persisting: spending and job growth remain solid. We now project that the Fed will cut rates by half a percentage point this year, given higher US growth and more elevated inflation than previously envisaged. We’re maintaining our balanced positioning. This means that, relative to our long-term, strategic asset allocation, we remain neutral for equities versus bonds. After a strong first quarter for equities and riskier bonds, we're refraining from adding more risky assets at this stage.”

Pictet Wealth Management
“Overall, the US economy continues to grow at a solid pace despite monetary constraint. Meanwhile, inflation risks are stalling out and becoming stuck at a higher level than expected before. Solid domestic demand and upward revisions to inflation suggest the Fed will take an even more patient approach to policy adjustment. At the Federal Open Market Committee (FOMC) next week, we expect a hawkish hold where chair Powell would signal the data suggest later and fewer cuts. We expect gradually slowing inflation and a modest slowdown in demand (to a still solid pace) to get the Fed to ease twice this year, but risks are skewed towards later and fewer cuts. We continue to expect the bar for a rate hike this year to be high. If Powell sounds more open-minded about such a move next week, that would be a hawkish outcome.”

Ryan Brandham, head of global capital markets, North America at Validus Risk Management
“The latest US GDP was much weaker than anticipated, particularly surprising given the perceived strength of the economy. Despite this, price components came in higher than expected. This combination of slower growth alongside higher prices is worrying. If higher prices persist, the US Federal Reserve will find it hard to cut rates to support growth. Initial jobless claims' data showed a strong print, surpassing expectations and suggesting that the labor market continues to demonstrate strength, showing no indication of slowing down.”

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