The U. S. economy grew faster than expected in the quarter

New Century Advisors Lead Economist Claudia Sahm and Piper Sandler Chief Investment Strategist Michael Kantrowitz discuss whether the economy is on the verge of a recession in the article “Making Money. “

The U. S. economy grew faster than expected in early 2024 as consumers continued to open their wallets despite persistent inflation and peak interest rates.

Gross domestic product, the broadest measure of goods and output in the overall economy, rose 2. 8% on an annualized basis in the three-month period from April to June, the Commerce Department said Thursday in its first reading the data.

This is well above the 2% increase predicted by LSEG economists and the 1. 4% pace seen in the first quarter.

“The U. S. economy is much stronger than other people think, and to the extent that markets were worried about slowing growth, they are breathing a sigh of relief after the GDP numbers released this morning,” said Chris Zaccarelli, director of Independent Advisor Alliance investments. .

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Consumer spending, which accounts for about two-thirds of GDP, saw a sharp increase in the second quarter. It rose 2. 3% in the period, up 1. 5% in the last quarter, as Americans ramped up spending on goods.

Business investment also rose at a rapid pace of 5. 2% in the spring, even as companies faced headwinds such as peak interest rates.

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“GDP doubled from the first quarter as customers spent more than expected and businesses built up inventories hoping customer demand would remain good,” said Robert Frick, a business economist. at Navy Federal Credit Union. ” This is a wonderful marvel in favor of continued expansion, but not so much as to make the Federal Reserve hesitant to cut interest rates. “

An employee polishes a weld on a part manufactured at Liberty Safe Company in Payson, Utah, March 22, 2022. (George Frey/Getty Images/Getty Images)

Despite last quarter’s increase, the economy still appears to be slowing in the face of higher borrowing prices, the highest in more than two decades. Before the Federal Reserve aggressively raised interest rates in 2022 and 2023 to curb inflation, the economic expansion was much greater than it is today.

There are other signs that the expansion is slowing in the face of tightening financial policy. Employment expansion is moderating. The housing market, which relies on emerging interest rates, is stuck in a prolonged slowdown and client spending has shown signs of stabilizing.

Many consumers remain dissatisfied with the state of the economy as they continue to feel the impact of emerging costs of critical goods such as rent, groceries, and auto insurance. While inflation has fallen from its peak of 9. 1%, it remains above the Federal Reserve’s 2% target.

“The genuine economy is not as strong as the second-quarter GDP numbers suggest,” said Alfredo Ortiz, executive director of the right-wing Job Creators Network. “In the genuine world, Americans are still struggling to make ends meet, having to buy fuel and run errands. “

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Federal Reserve officials have indicated they are in a position to soon begin cutting interest rates amid signs of a slowing economy and inflation. Investors expect authorities to make the first cut at their September meeting.

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