Strong US labor market underpins economy in first quarter
Consumer spending and corporate investment both rose strongly in the second quarter, driving faster-than-expected economic growth. However, inflationary pressures eased, maintaining the consensus that the Federal Reserve will drop interest rates in September.
The Commerce Department’s advance report on second-quarter gross domestic product indicated on Thursday that inventory building and increasing government expenditure also contributed to growth last quarter. A minor drag on the economy was the reversal of the housing market rebound. The expansion of the trade imbalance has a negative impact on GDP growth.
The disappointing results in the first quarter and April had fueled fears that the economic expansion may come to a sudden halt, but the report put those fears to rest.
The economy is outperforming its worldwide counterparts, thanks to a strong labor market, even though the U.S. central bank rises interest rates significantly in 2022 and 2023.
“Economic growth is solid, not too hot and not too cold,” remarked Christopher Rupkey, chief economist at FWDBONDS. “Inflation looks to be going the Fed’s way and an easing of monetary restraint with an interest rate cut is likely in September.”
According to the Bureau of Economic Analysis, which is part of the Commerce Department, the advance estimate of second-quarter GDP showed that gross domestic product expanded at an annualized rate of 2.8% last quarter. That was twice as fast as the first quarter’s growth rate of 1.4%.
Half of the 4.2% growth recorded in the final half of 2023 occurred in the first half, with an average rate of 2.1%. This is rather higher than the 1.8% growth rate that U.S. central bank authorities consider to be the non-inflationary growth rate.
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