US Final GDP data released on Thursday was a disappointment, with an annualized decrease in the first quarter of 2025 of 0.5%, revised downwards from the second estimate in May of -0.2%. The downward revision was due to decreases in consumer spending, exports and government spending.
The first-quarter GDP release marks a sharp reversal from Q4 2024, in which the US economy expanded 2.4% year-on-year, and this is the first time in three years that the US economy has declined.
The BEA noted that the current US Dollar GDP, which does not account for the impact of inflation on the current value of GDP, increased by 3.2% year-on-year, lower than the 3.4% gain in the second estimate.
The personal consumption expenditures (PCE) price index increased 3.4% in the first quarter, up from 3.3% in the second estimate. Similarly, the core PCE price index, which excludes food and energy and is closely watched by the Fed, rose 3.7% in Q1, up from 3.6% in the second estimate.
Thursday’s weak GDP report is a clear indication that the US economy is slowing down, but the labour market remains surprisingly resilient. Initial jobless claims, released today, dropped to 236,000, down from an upwardly revised 246,000 in the previous release and below the consensus of 245,000. If the US labor market continues to post strong numbers, market expectations for a rate cut in the next few months will increase.
In the Forex market, the US dollar has retreated against all the major currencies in the aftermath of the GDP and unemployment claims report. The greenback has been on a nasty slide as risk appetite has climbed following the ceasefire between Israel and Iran and hopes that oil supplies will not be disrupted.
The GBPUSD currency pair has jumped 1.95% this week and the British Pound hit 1.3764 earlier today, its highest level since Oct. 2021. It has been a similar story for the EURUSD currency pair, which is up 1.57% this week and touched 1.1744 earlier today, its highest level since Sep. 2021.
US stock markets have just opened and have posted slight gains:
The S&P 500 Index is up 21 points (0.35%) and is trading at 6113 points.
The Nasdaq 100 Index has climbed 55 points (0.25%) and is trading at 22,293 points.