The US economy grew at a 3% annual rate in the second quarter of 2024, according to the Commerce Department’s latest report.
This marks a significant acceleration from the 1.4% growth rate recorded in the first quarter, driven largely by robust consumer spending and business investment.
Consumer spending, which represents around 70% of US economic activity, rose at a 2.9% annual rate, up from the initial estimate of 2.3%.
Business investment also showed strong performance, expanding at a 7.5% rate, with equipment investment surging by 10.8%.
These numbers highlight an economy that remains resilient despite high interest rates and inflation concerns.
The revised GDP growth figures point to continued strength in consumer spending and business investment.
Consumers, buoyed by a slight increase in confidence, have maintained their expenditure, which rose at a 2.9% annual rate in Q2.
Business investment also contributed to growth, particularly in equipment, which saw a 10.8% increase.
This level of investment reflects corporate confidence in future demand, despite the economic uncertainty caused by high borrowing costs and global market volatility.
The inflation picture is gradually improving, with the central bank’s preferred measure, the personal consumption expenditures (PCE) index, rising at a 2.5% annual rate in the second quarter, down from 3.4% in the first quarter.
Core PCE inflation, which excludes food and energy prices, also decelerated to 2.7% from 3.2% in the first quarter.
The Federal Reserve has been targeting a 2% inflation rate, and these figures suggest progress toward that goal, offering a potential window for future interest rate cuts.
Will the Federal Reserve cut interest rates?
The Federal Reserve is now positioned to consider rate cuts as inflation moves closer to its target.
With inflation down from a peak of 9.1% to 2.9% and likely to decline further, the Fed aims for a “soft landing” — reducing inflation while maintaining employment levels and avoiding a recession.
Interest rates have been raised 11 times since 2022, reaching a 23-year high, but a shift in policy may be imminent.
Market watchers are anticipating the Fed’s next meeting in mid-September, where further rate cuts could be discussed, potentially easing borrowing costs for consumers and businesses.
The recent GDP growth data underscores the resilience of the US economy.
While high interest rates were expected to trigger a downturn, the economy continues to grow, supported by steady employment figures and consumer spending.
There are signs of slowing momentum in the job market, with the unemployment rate rising to 4.3% over the past four months and job openings decreasing. Despite these headwinds, the overall economic outlook remains cautiously optimistic.
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