US economic data released on Thursday was disappointing across various indicators. The economy expanded at a weaker pace earlier this year than initially reported, with a decline in home sales and higher mortgage rates pushing the average rate above 7%. Treasury yields also slipped following the government’s latest measure of economic growth, which showed softer consumer spending and the benchmark 10-year US Treasury yield sliding below 4.6%.
The economic figures released on Thursday indicate that the economy is not picking up steam and has been struggling under the weight of the highest interest rates in more than two decades. While this may be putting pressure on American consumers, it also suggests a potential lowering of high borrowing costs in the future. Additionally, the slowdown in inflation stalled in the first quarter, raising fears of a rate hike by the Federal Reserve, but now the possibility of rate cuts in 2024 is back in the conversation.
The latest GDP data showed revisions to inflation in the first quarter, including a measure that excludes volatile food and energy prices. This could strengthen the case for rate cuts moving forward. While there are some warning signs about the economic outlook, financial markets economist Oren Klachkin remains cautiously optimistic about the road ahead in terms of economic expansion.
The second estimate of first-quarter GDP, measuring all services and goods produced in the economy, showed a 1.3% annualized rate, down from the initial estimate of 1.6%. Consumer spending was revised downward to 2% from the initial 2.5%, accounting for around 70% of the US economy. Corporate profits also fell in the first quarter, pointing to potential challenges in passing on costs to consumers despite decent earnings results.
Housing data released on Thursday indicates the market remains challenging, particularly for first-time buyers. Mortgage rates reached 7.02%, the highest level in decades, with pending home sales slumping to the lowest level in four years. The tough borrowing costs are spooking buyers and freezing the housing market, but there is hope that conditions could improve with anticipated rate cuts from the Federal Reserve later this year.
Weekly data on jobless benefit applications show a slight uptick in initial claims, with continuing claims also ticking higher. While not alarming, the upward trend in jobless claims over the past few weeks is something to monitor. Despite the challenges in various economic indicators, the stock market closed lower on Thursday, with the Dow down 331 points, the S&P 500 down 0.6%, and the Nasdaq Composite dropping 1.1%.
