According to the Bureau of Economic Analysis (BEA), the second estimate for real gross domestic product (GDP) in the first quarter of 2024 has been revised downward. This revision was driven by a larger decrease in consumer spending than initially projected, signaling a potential slowdown in the economy.

The BEA's second estimate reveals that real GDP increased at an annual rate of 1.3% for the period from January to March. However, this growth rate is lower than the BEA's original estimate of 1.6% for the same quarter. This decline can be attributed to a slowdown in consumer spending, exports, and both state and local government spending, with federal government spending also experiencing a downturn. The only offsetting factor was an acceleration in residential fixed investment.

Jim Baird, the chief investment officer at Plante Moran Financial Advisors, noted that this report confirms the economy's loss of momentum, with its weakest quarterly pace in nearly two years. Baird suggests that this loss of momentum began with consumers curbing their spending. Spending on goods, particularly durable goods, turned slightly negative, possibly due to higher interest rates, which have increased the cost of borrowing. This has created an additional hurdle for consumers, especially when financing big-ticket purchases such as vehicles, resulting in negative vehicle sales for the fourth consecutive quarter.

Despite these concerns, consumer confidence rebounded in May after declining for the previous three months, likely due to a strong labor market. The Conference Board's Consumer Confidence Index rose to 102 in May from 97.5 in April. However, this increase in confidence is cautious, as the overall gauge continues to remain within a relatively narrow range observed over the past two years.

The report also highlights a potential resurgence in recession concerns among consumers. More individuals expressed belief that a recession is 'somewhat likely' or 'very likely.' Additionally, consumers anticipate an increase in inflation over the next 12 months, resulting in a higher percentage of individuals expecting higher interest rates in the coming year.

In terms of inflation, shelter costs, including rent and homeownership expenses, have been a major driver. These costs increased by 0.4% in April and 5.5% over the past year. The National Association of Home Builders (NAHB) emphasizes the need for increased housing supply to address soaring shelter prices. The lack of available homes is hindering homeownership affordability for many Americans, thus contributing to high shelter inflation.

The NAHB Chairman, Carl Harris, asserts that any policy aimed at improving affordability must address the urgent need to increase the supply of single-family and multifamily housing for both sale and rent. Failure to do so will inevitably lead to the failure of affordability initiatives.

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Overall, the revision in Q1 GDP signifies a slowdown in consumer spending, which has raised concerns about a potential recession. As consumer confidence remains cautious and inflation, particularly shelter costs, continues to rise, policymakers face the challenge of supporting economic growth while addressing affordability issues in housing.