Economic indicators signaling a slowdown emerged ahead of next week's Federal Open Market Committee (FOMC) meeting, which will determine U.S. benchmark interest rates.
The U.S. Commerce Department reported on the 13th (local time) that fourth-quarter gross domestic product (GDP) growth (revised estimate) came in at 0.7%. This represents a 0.7 percentage point downward revision from the advance estimate of 1.4% released last month and falls short of the 1.5% consensus forecast compiled by Dow Jones. The revised estimate incorporates economic activity indicators that were unavailable for the advance estimate.
Consumer spending and business investment slowed more than initially reported, while trade, which had provided a modest boost in the advance estimate, became a drag. Government spending declined more than expected, particularly due to the federal government shutdown from October 1 to November 12 last year.
Annual GDP growth for last year was recorded at 2.1%, down 0.1 percentage point from the advance estimate.
The data came amid growing concerns over signs of cooling in the U.S. labor market and the prolonged conflict between the U.S.-Israel alliance and Iran. U.S. nonfarm payrolls fell by 92,000 in February from the previous month, marking the largest decline since December 2020 (185,000), immediately following the COVID-19 pandemic.
Inflation data released the same day met expectations but remained elevated. The January Personal Consumption Expenditures (PCE) price index rose 2.8% year-over-year, slightly below the Dow Jones consensus forecast of 2.9%. The month-over-month increase of 0.3% matched expectations. The core PCE price index, excluding energy and food, rose 3.1% year-over-year and 0.4% month-over-month, both in line with forecasts. These figures predate the U.S.-Israeli strikes on Iran, and oil price surges following the conflict are expected to add upward pressure on inflation.
The PCE price index measures prices paid by U.S. residents for goods and services. The Federal Reserve uses the PCE price index, rather than the more widely known Consumer Price Index (CPI), as its benchmark for assessing progress toward its 2% inflation target.
The Fed will hold its FOMC meeting over two days from the 18th to the 19th. Markets widely expect interest rates to remain unchanged. The meeting will also release the Fed officials' interest rate projections, known as the dot plot.
