U.S. GDP Growth Disappoints

Almost every indicator, from employment and income to business activity and retail sales, has painted a picture of a resilient U.S. economy over the past three months. But Thursday will provide a first look at the overall picture: Economists expect a quarter of fairly strong growth.

The Bureau of Economic Analysis will release its first estimate of the inflation-adjusted gain in gross domestic product during the first quarter at 8:30 a.m. Eastern on Thursday. The consensus call among economists surveyed by FactSet is that GDP increased at an annual rate of 2.2%. The latest New York Fed Staff Nowcast points to 2.2% growth as well.

But some forecasts point to another surprise. Goldman Sachs chief economist Jan Hatzius and his team are forecasting 3.1% annualized GDP growth. Meanwhile, the latest Atlanta Fed's GDPNow forecasting model, released Wednesday, predicts the U.S. logged 2.7% in economic growth during the first quarter. Morgan Stanley’s Ellen Zentner is calling for the same, while EY chief economist Gregory Daco expects real GDP grew by 2.6%.

The forecasts, however, agree on one aspect. They point to slower growth than the 3.4% pace set at the end of last year. Economists forecast that while consumption helped drive much of the first-quarter growth, the data will show some pullback by U.S. households compared with the end of 2023. Thursday’s report will likely show that consumers eased off on buying goods, though services consumption is expected to remain fairly strong.

“U.S. economic activity remains resilient, powered by consumers’ ongoing ability and willingness to spend, even if they are being more scrutinous in the face of high prices,” Daco wrote.

The robust labor market underpins that consumer spending, with growth in payrolls averaging close to 300,000 positions per month during the first quarter. In fact, Morgan Stanley raised its forecast for average monthly job gains to 225,000 this year due to new population data that suggest immigration is expanding the available workforce.

The unemployment rate continues to remain below 4%, ticking down to 3.8% in March.

Wage growth, which continues to deliver solid gains for workers, is another part of the picture. When factoring in the effects of inflation, average hourly earnings in March increased 0.7% compared to the prior year, according to the Bureau of Labor Statistics.