Shock slowdown in US economic growth in first three months of 2024 sparks fears of downturn and sends stocks plummeting

The US economy is finally showing signs of cooling as growth fell to 1.6 percent in the first three months of the year.

Economists polled by Reuters had predicted the rate of Gross Domestic Product (GDP) would rise to 2.4 percent. 

The lower-than-expected data, released by the Commerce Department Bureau of Economic Analysis, sent stocks downwards Thursday morning. 

The Dow Jones Industrial Average tumbled 1.7 percent or 650 points while the S&P 500 lost 1.4 percent. 

Despite the slight downturn, Americans continue to spend heavily on healthcare, insurance and other services, the Commerce Department said. 

Economists polled by Reuters had predicted the rate of Gross Domestic Product (GDP) would rise to 2.4 percent

The US economy is finally showing signs of cooling as growth fell to 1.6 percent in the first three months of the year

However, there was a dip in spending on goods such as cars and gasoline.

It comes amidst speculation over when the Federal Reserve will start to cut interest rates which are currently at their highest level in 23 years.

The Fed's aggressive tightening cycle was intended to stamp out soaring inflation which peaked at an annual rate of 9.1 percent in January 2022. 

A slowing of the economy paves the way for officials to slash rates however a recent acceleration in inflation has put an imminent cut in jeopardy.

The Fed has a clear target of bringing inflation into its target range of 2 percent yet in March, the annual rate ticked upwards slightly to 3.5 percent. 

Only 6.4 percent of investors currently expect a cut at the Fed's next meeting on May 1, according to the CME FedWatch Tool.

The majority - over 57 percent - foresee a cut coming by September at the latest.

The International Monetary Fund last week upgraded its forecast for 2024 U.S. growth to 2.7 percent from the 2.1 percent projected in January, citing stronger-than-expected employment and consumer spending. 

Job gains in the first quarter averaged 276,000 per month versus the October-December quarter's average of 212,000.

The economy has defied prophecies of doom since late 2022 in part because households locked in lower mortgage rates while businesses refinanced debts before rates started rising, economists said.