ECNETNews reports from WASHINGTON: The U.S. economy experienced robust growth of 3% annually in the last quarter, driven by strong consumer spending and business investment, according to a revised report released by the government.
The Commerce Department had initially projected the nation’s gross domestic product (GDP) growth rate at 2.8% for the period from April to June.
This second-quarter performance reflects a significant rebound from a modest 1.4% growth rate recorded in the first quarter of 2024.
Consumer spending, which constitutes roughly 70% of U.S. economic activity, increased at a 2.9% annual rate last quarter, a notable rise from the earlier estimate of 2.3%. Business investment saw a substantial gain as well, expanding at a 7.5% rate, mainly due to a 10.8% surge in equipment investment.
Despite enduring high interest rates, the report indicates a resilient economy, a critical factor for voters as the November presidential election approaches. High prices continue to frustrate Americans, although inflation has significantly decreased since reaching a 40-year high in mid-2022.
The latest GDP data also revealed a subsiding inflation trend, although it remains slightly above the Federal Reserve’s 2% target. The personal consumption expenditures index (PCE), the Fed’s preferred inflation measure, rose at a 2.5% annual rate last quarter, down from 3.4% in the first quarter. Core PCE inflation, excluding volatile food and energy prices, increased at a 2.7% pace, also reflecting a decline from 3.2% in the previous quarter.
A key GDP component that assesses the economy’s underlying strength grew at a healthy annual rate of 2.9%, an increase from 2.6% in the first quarter. This measure includes consumer spending and private investment while excluding volatile sectors like exports, inventories, and government spending.
In response to soaring prices, the Federal Reserve raised its benchmark interest rate 11 times in 2022 and 2023, reaching a 23-year peak. This effort contributed to reducing annual inflation from 9.1% at its highest to 2.9% last month. While higher borrowing costs were anticipated to trigger a recession, the economy has continued to expand, and hiring has remained steady.
With inflation now hovering just above the Fed’s target and anticipated to decline further, Chair Jerome Powell has suggested that the Fed may soon ease interest rates. The next meeting in mid-September is likely to bring discussions on rate cuts.
An extended period of reduced Fed rates aims to facilitate a “soft landing,” enabling the central bank to balance inflation control with maintaining a strong job market while preventing a recession. Decreased rates for consumer loans such as auto loans and mortgages may likely follow.
The Federal Reserve is now prioritizing support for the job market, which is showing signs of gradual weakening, over its inflation-fighting efforts. The unemployment rate has climbed for four consecutive months to 4.3%, a figure still considered low historically. Meanwhile, job openings and hiring rates have also dipped, albeit remaining stable overall.
This report represents the Commerce Department’s second estimate of GDP growth for the April-June quarter, with a final estimate set to be released next month.
