Quick Bites | US GDP Growth Stronger Than Expected

The US economy accelerated in the second quarter as consumers increased their spending, businesses invested more in equipment and stocked inventories, and inflation cooled. Gross domestic product (GDP) rose at an annual rate of 2.8% for Q2 to $22.9 trillion.

That was faster than the 1.4% pace in the first quarter, and well above the 2.1% rate expected. Household spending, the main driver of the US economy, increased at a quicker pace as Americans’ incomes continued to rise. Business spending also picked up, which analysts described as a positive signal for future productivity.

The GDP report also showed that inflation, using the Fed’s preferred gauge, is slowing compared with the previous quarter. Excluding volatile food and energy prices, the personal consumption expenditures price index (PCE) rose 2.9% in the second quarter at an annualized rate, cooling from 3.7% in the first quarter.

The new data shouldn’t necessarily change the outlook for the Federal Reserve. Officials have signalled that they expect to hold interest rates steady at their meeting next week but could cut at their subsequent meeting in September if inflation continues to cool.

The Q2 GDP data is one of the last major readings of the economy’s temperature that Fed officials will see before their meeting. The report suggests that the economy remains on solid footing, even two years after soaring inflation followed by rising rates at the fastest pace in decades. But the report is backward-looking, and companies have been warning that customers are feeling squeezed, and that they expect that to continue.

While the US is doing well even with high rates, and the pace of inflation has cooled, many Americans remain unhappy with high prices for groceries, cars, and homes. Toxic rhetoric on the campaign trail is certainly not helping the mood. But in the meantime, the overall US economy keeps chugging along.

Source: Wall Street Journal