Despite ongoing fears of a recession beginning to show its claws on the American economic horizon, the economy of the world’s leading power grew in the second quarter at a slightly higher pace than initially announced, thanks to a upward revision of consumer spending which more than offset the decline in activity in other categories. While these figures will not allay all fears, they once again provide a “lifeline” for those counting on a soft landing for the economy (inflation in line with target without serious macroeconomic deterioration) after aggressive rate increases, such as the chairman of the Federal Reserve, Jerome Powell.
The U.S. gross domestic product (GDP) increased by an annualized rate of 3% over the period between April and Juneup from the previous estimate of 2.8%, according to new figures from the Bureau of Economic Analysis (BEA) released Thursday. The economy’s main driver — consumer spending, which accounts for two-thirds of GDP — grew at an annualized rate of 2.9%, up from the previous estimate of 2.3%. A six-tenths revision that makes clear that the American consumer can tolerate — at least so far — pretty much anything that’s thrown at him.
The upward revision to consumer spending reflects both greater advances in the procurement of goods and servicesThe main drivers of the increase were higher spending on health care, housing, utilities and recreation. At the same time, the BEA revised down business spending, inventories, net exports, residential investment and government spending.
The other main indicator of economic activity included in the BEA report, the gross domestic incomeA different measure of GDP, namely the income side, grew by a more moderate 1.3% annualized rate in the government’s first estimate for the period, matching the first-quarter increase. While GDP measures spending on goods and services (the demand side), gross domestic income measures the income generated and costs incurred in producing those same goods and services. The average of the two growth measures was 2.1%.
As for the inflationThe Fed’s favorite indicator – the personal consumption expenditures price index (PCE), a kind of consumption deflator—rose at an annualized rate of 2.5% in the second quarter, slightly below the initial projection. Excluding food and energy, the underlying PCE indicator, which the Fed actually looks at, rose 2.8%, down from 2.9% in the previous estimate.
Federal Reserve officials recently indicated that they were more focused on the labor market of his dual mandate now that inflation has largely receded. Chairman Jerome Powell said last week that central bankers are neither “seeking nor accepting a further cooling in labor market conditions.” Economists are eagerly awaiting the release of monthly PCE data for July on Friday. The gauge, which excludes food and energy, is currently expected to have risen 2.7% from the same month last year.
It is true that those published this Thursday are data “from the past” and that growth has slowed so far this year after accelerating in the second half of 2023. Particularly revealing data were such as the July employment data, which saved the specter of the crisis. recession. The forecasts indicate greater moderation for the rest of 2024as high borrowing costs continue to creep into the economy. At the same time, the Federal Reserve will begin cutting interest rates next month as inflation slows, which could provide some relief to sectors most affected by borrowing costs, such as housing and manufacturing.
“After a poor first quarter (1.4% annualized), revised second-quarter GDP growth remained strong, helping to reassure investors that the economy is not weakening. “While the labor market has seen some weakness in recent months, other economic data shows that consumers continue to spend, as evidenced by personal consumption, which leads today’s revised reading,” said Bret Kenwell, investment analyst at eToro.
“Despite the second-quarter upgrade, the Fed is unlikely to change its rate-cutting plans at next month’s meeting, after Chairman Powell made clear that now is the time to shift policy toward lower rates. That’s because the Fed is looking at a set of data, not a single indicator, and won’t change its plans because of a single report,” the analyst continued. “While we’re not necessarily out of the woods, the U.S. economy is more resilient than many think. Today’s report should give investors confidence that the Fed can still orchestrate a soft landing,” he concluded.Maybe Jerome Powell Will Make a Soft Landing “After all,” Jesse Cohen, a financial analyst at Invest.
