The second quarter sees unexpected US economic growth, bolstered by consumer activity and federal expenditures
Economic activity in the US was stronger than expected during the second quarter, according to CNBC.
The Commerce Department's initial estimate on Thursday revealed growth driven by consumer spending, government expenditure, and a notable inventory increase.
Real gross domestic product (GDP) grew at a 2.8 percent annualized pace, adjusted for seasonality and inflation. This exceeded economists' predictions of 2.1 percent growth, following a 1.4 percent rise in the first quarter.
Consumer spending, private inventory investment, and non-residential fixed investment were key contributors to this growth. Personal consumption expenditures, which reflect consumer activity, increased by 2.3 percent for the quarter, up from 1.5 percent in the first quarter.
Both services and goods spending saw significant increases.
Inventories added 0.82 percentage points to the GDP growth. Government spending also rose, with a 3.9 percent increase at the federal level, including a 5.2 percent surge in defense spending.
However, imports, which negatively impact GDP, rose by 6.9 percent, marking the largest quarterly increase since the first quarter of 2022. Exports grew by only 2 percent.
Following the report, stock market futures moved higher, while Treasury yields declined. Joseph Brusuelas, chief economist at RSM, noted that the growth composition was the best seen in some time.
He stated, “The composition of growth was one of the better mixes that we have observed in some time,” supporting the idea of a productivity boom in the US economy that could improve living standards through lower inflation, low unemployment, and rising real wages.
On the inflation front, the personal consumption expenditures price index, a key Federal Reserve measure, increased by 2.6 percent for the quarter, down from 3.4 percent in the previous quarter. Core PCE prices, excluding food and energy, rose by 2.9 percent, compared to 3.7 percent in the first quarter.
The chain-weighted price index, which accounts for changes in consumer behavior, rose by 2.3 percent, below the 2.6 percent estimate.
Treasury Secretary Janet Yellen described the GDP report as affirming the path to steady growth and declining inflation. Final sales to private domestic purchasers, a good indicator of underlying demand according to the Federal Reserve, accelerated at a 2.6 percent pace, the same as in the previous quarter.
The report also highlighted a continued decline in the personal savings rate, which fell to 3.5 percent from 3.8 percent in the first quarter.
Recent signs of consumer distress include a Philadelphia Federal Reserve report showing credit card delinquencies at a record high, with revolving debt balances reaching new highs and banks tightening credit standards and issuing fewer new cards.
Despite these challenges, retail sales continued to rise, indicating consumer resilience against high interest rates and persistent inflation. However, the housing market faced pressure as declining sales and rising home prices stressed first-time homebuyers.
Federal Reserve officials are expected to maintain interest rates at their upcoming meeting, though market speculation points to a potential rate cut in September, the first in four years.
Policymakers have shown caution regarding rate reductions, with recent comments suggesting a greater willingness to ease policy and an unlikely scenario of further rate increases.
In other economic news, the Labour Department reported 235,000 initial jobless claims for the week ending July 20, a decrease of 10,000 from the previous week, aligning with Dow Jones forecasts. Continuing claims, a week behind initial claims, fell to 1.85 million.
Additionally, durable goods orders, which include items like aircraft, appliances, and computers, unexpectedly fell by 6.6 percent in June, contrary to a forecasted 0.3 percent increase. However, excluding transportation, new orders rose by 0.5 percent.
