A report released by the Commerce Department on Thursday showed the U.S. economy grew by much less than expected in the first quarter of 2024.

The Commerce Department said gross domestic product increased by 1.6 percent in the first quarter after surging by 3.4 percent in the fourth quarter of 2023. Economists had expected GDP to jump by 2.5 percent.

The GDP growth in the first quarter reflected increases in consumer spending, residential fixed investment, nonresidential fixed investment, and state and local government spending.

However, the positive contributions were partly offset by a decrease in private inventory investment and an increase in imports, which are a subtraction in the calculation of GDP.

The Commerce Department said the notable slowdown in GDP growth compared to the previous quarter primarily reflected decelerations in consumer spending, exports, and state and local government spending and a downturn in federal government spending.

The report showed consumer spending growth slowed to 2.5 percent in the first quarter from 3.3 percent in the fourth quarter, with an increase in spending services partly offset by a decrease in spending on goods.

“The economy will likely decelerate further in the following quarters as consumers are likely near the end of their spending splurge,” said Jeffrey Roach, Chief Economist for LPL Financial. “Savings rates are falling as sticky inflation puts greater pressure on the consumer.”

On the inflation front, the Commerce Department said the personal consumption expenditures price index surged 3.4 percent in the first quarter after advancing by 1.8 percent in the fourth quarter.

Excluding food and energy prices, the PCE price index spiked 3.7 percent in the first quarter after jumping by 2.0 percent in the fourth quarter.

“We should expect inflation will ease throughout this year as aggregate demand slows, although the path to the Fed’s 2% target still looks a long ways off,” said Roach.

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