A look at U.S. economic data, including inflation, jobless claims and Treasury yields

Washington CNN —

The US economic data released on Thursday were generally disappointing.

The Americas economy grew at a slower pace at the start of the year than initially expected. The decline in home sales based on contract signings last month was much steeper than economists expected. And mortgage rates rose slightly this week, bringing the average rate above the psychological threshold of 7%.

Treasury yields fell after the government released the latest measure of economic growth in the first quarter, which also showed consumer spending was weaker than expected. The benchmark 10-year U.S. Treasury yield fell below 4.6%.

Economic figures released Thursday show the economy is not warming up and is instead struggling under the weight of the highest interest rates in more than two decades. And while Thursday's indicators indicate some economic pressure is being felt by U.S. consumers, it also bodes well for a possible decline in high borrowing costs.

This positive side is particularly important after the slowdown in inflation stopped in the first quarter. Signs of stalled inflation have raised concerns that the Federal Reserve may raise rates again this year or not cut them at all. Today, the possibility of a rate cut during 2024 is back in the discussions.

And the latest GDP data also showed that first-quarter inflation was revised downward, including a measure that excludes volatility in food and energy prices. It also helps strengthen the case for rate cuts.

Monthly data beyond March generally indicates continued economic expansion, although slightly slowing, Oren Klachkin, financial markets economist at Nationwide, said in a note Thursday. Some warning signs about the economic outlook are visible beneath the surface, but nothing makes us pessimistic about the path ahead.

The Commerce Department's second estimate of first-quarter gross domestic product, which measures all services and goods produced in the economy, recorded an annualized rate of 1.3%, down from the 1.6% reflected in the first estimate. This is largely due to a downward revision in consumer spending, which accounts for about 70% of the U.S. economy. Spending increased by 2% between January and March, compared to an initial rate of 2.5%.

The latest GDP report also showed that corporate profits, before taxes, fell 0.6% in the first quarter, the first decline in a year and down sharply from the 4.1% increase during the previous three months. Yet even though most companies' results this quarter were satisfactory, companies said they found it increasingly difficult to pass on costs to consumers.

Housing data released Thursday mostly showed the market remains tough, particularly for first-time buyers.

The standard 30-year fixed-rate mortgage averaged 7.02% this week, up slightly from last week's average of 6.94%, according to Freddie Mac data. Mortgage rates are higher than anything seen in the decade leading up to 2022, when the Fed began raising rates in an effort to control inflation. They are not expected to fall significantly this year as inflation remains stubbornly high. As long as that remains the case, the Fed likely won't cut interest rates in 2024, at least not enough to give Americans some relief. The Fed does not directly set mortgage rates, but its actions, which influence yields, do. Mortgage rates follow the 10-year yield.

Pending home sales fell 7.7% in April to 72.3, the lowest level in four years, according to National Association of Realtors data released Thursday. Despite some welcome improvement in housing supply in recent months, high borrowing costs are spooking buyers and keeping the country's property market frozen.

The impact of rising interest rates throughout April dampened home purchases, even with more inventory on the market, Lawrence Yun, NAR's chief economist, said in a statement. But the Federal Reserve's planned rate cut later this year should lead to better terms, with greater affordability and greater supply.

The weekly unemployment claims data, released every Thursday and often seen as the first sign of a change in the job market, is not worrisome, but it has been trending upward in recent weeks. According to Ministry of Labor data released Thursday, 219,000 first claims were filed in the week ending May 25. Last week's filings were up 3,000 from the previous week's upwardly revised figure, but were mostly in line with economists' forecasts.

Economists expected 218,000 initial claims, according to FactSet consensus estimates.

Continuing claims increased by 4,000 to 1.791 million for the week ended May 18. The four-week average of 222,500 is the highest since mid-September last year.

Weekly data on jobless claims, considered a proxy for layoffs, can be very volatile and are frequently revised.

The Dow Jones closed down 331 points, or 0.9%. The S&P 500 was down 0.6% and the Nasdaq Composite was down 1.1% on Thursday.

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