US Economy Shows Strong Growth in Q2 Despite Rate Hikes and Inflation
Washington, CNN – The US economy demonstrated strong growth in the second quarter of the year, despite facing punishing rate hikes and persistent inflation. According to the Commerce Department’s report on Thursday, gross domestic product (GDP), which is the broadest measure of economic output, grew at an annualized, seasonally adjusted rate of 2.4% in the April-through-June period. This rate surpassed economists’ expectations of 1.8% and was higher than the growth rate in the first quarter of the year. The GDP figure is also adjusted for inflation.
The growth in the second quarter was primarily driven by business investment, government purchases, inventory investment, and consumer spending, although the pace of consumer spending was significantly weaker compared to the first quarter. Consumer spending, which accounts for about two-thirds of economic output, only grew at a rate of 1.6% in the second quarter, a sharp decline from the 4.2% rate seen in the previous three months. This decline was largely due to reduced spending on durable goods, such as cars and washing machines, which are meant to last at least three years.
On the other hand, nonresidential business investment experienced a sharp rise, with a growth rate of 7.7% in the second quarter, compared to a rate of 0.6% at the beginning of the year. This increase was mainly driven by spending on equipment, which surged to 10.8% from -8.9%.
The Federal Reserve, which recently raised interest rates by a quarter point to their highest level in 22 years, will likely view the GDP report positively. The slowdown in consumer spending indicates a cooling demand, which aligns with the central bank’s objective of achieving a slowdown through rate hikes. However, the report also highlights the resilience of the economy, providing the Fed with the possibility of implementing another rate hike later this year.
Lydia Boussour, a senior economist at EY-Parthenon, believes that the Fed will interpret the slower consumer spending figures as a sign of economic cooling, which supports their goal of pushing growth below potential. “The Fed is looking at consumer spending slowing down as a sign that the economy is cooling, so I think they will take some comfort from these slower numbers since the Fed wants to push growth below potential,” Boussour explained to CNN.
Overall, despite challenges posed by rate hikes and inflation, the US economy exhibited robust growth in the second quarter. The positive GDP report provides evidence of both a cooling demand and an economy that is resilient enough to handle further rate hikes.
Original Story at www.cnn.com – 2023-07-27 12:58:00
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