US economy faces slowdown as inflation stays stubbornly high in 2024
US economic data showed mixed signals in early 2024, with inflation holding firm while growth slowed. A downward revision to fourth-quarter GDP and stagnant business investment raised concerns. Meanwhile, the dollar strengthened as rising crude prices and geopolitical tensions in the Middle East added pressure on global markets.
The US Commerce Department revised its Q4 GDP estimate down to an annualised growth rate of 0.7%, well below the earlier 1.4% figure. This adjustment followed weaker-than-expected business investment figures, as January's capital goods orders—excluding defence and aircraft—remained flat, missing forecasts of a 0.5% monthly increase.
Inflation stayed stubbornly high, with the January core PCE price index, the Federal Reserve's preferred measure, rising 3.1% year-on-year. This matched expectations but marked the highest reading in 1.75 years. Despite this, consumer inflation expectations for the next 12 months held steady at 3.4% in March, defying predictions of a rise to 3.7%.
The labour market showed resilience, with January job openings climbing by 396,000 to 6.946 million, exceeding the anticipated 6.75 million. Personal spending also beat expectations, rising 0.4% month-on-month, though income growth lagged at 0.4%, slightly below the forecasted 0.5%.
Geopolitical tensions further shaped market movements. The dollar index (DXY00) rose 0.28%, reaching a 3.5-month high, as crude prices surged. The ongoing conflict in Iran, including regional military reinforcements and indirect US-Iran talks, kept oil prices elevated. European and Japanese economies, heavily reliant on energy imports, faced currency weakness due to higher crude costs. France and Italy denied reports of bilateral negotiations with Iran over the Strait of Hormuz, though broader regional instability continued to influence oil markets.
The US economy now faces a balancing act between cooling growth and persistent inflation. A stronger dollar, driven by geopolitical risks and rising oil prices, adds pressure to global trade. With mixed labour market signals and subdued business investment, policymakers will likely monitor developments closely in the coming months.
