US GDP growth remains unrevised at 2.1% in the second quarter as the economy shows resilience. The U.S. economy grew solidly in the second quarter, and activity looks to have accelerated this quarter, but a government shutdown and auto worker strike are lowering the picture for 2023.

On Thursday, figures revealed that jobless claims rose marginally last week as inflation and labor market conditions remained high.

According to some experts, the economy’s resiliency and strong inflation may allow the Fed to raise interest rates again in November. Others anticipate the darker economic cloud to deter the U.S. central bank from tightening monetary policy.

“The big news is that the economy remains resilient, inflation remains elevated, and the Fed’s worst-case scenario, stagflation, has been avoided for now,” said Independent Advisor Alliance chief investment officer Chris Zaccarelli in Charlotte, North Carolina. “Given how much the Fed has raised rates, the economy is still growing at this pace.”

The government reported an unrevised 2.1% annualized GDP gain last quarter in its third estimate for April-June. That met economists’ forecasts. Consumer spending fell to 0.8% from 1.7%, while business investment in factories rose sharply as the Biden administration sought to bring semiconductor production back to the U.S.

Households spent less on utilities, car maintenance, repairs, furniture, durable home equipment, apparel, and footwear than expected.

First-quarter growth increased to 2.2% from 2.0%. The economy is growing faster than Fed policymakers’ 1.8% non-inflationary estimate. The U.S. central bank has raised its overnight interest rate by 525 basis points to 5.25%-5.50% since March 2022.

The government updated 2017 GDP figures. GDP growth averaged 2.2% from 2017 to 2022, up from 2.1%.

Revised income data showed the economy operating substantially better than initially stated. Some economists used the GDP-GDP gap to claim that the economy was weaker than reported. Americans had more COVID-19 savings than expected, and business earnings were revised.

“Overall it now looks like there is more ‘excess saving’ left over for consumers than we had seen before the latest revisions, which is good for the economy,” said JPMorgan New York economist Daniel Silver. “Upward revisions to recent corporate profit data also indicate expansion durability.”

July-September growth is estimated at 4.9%. Wall Street stocks rose. The dollar sank versus a basket. U.S. Treasury yields varied.

GOOD LABOUR MARKET

However, bitter battles among Republicans in the House of Representatives overspending might shut down the government and drain fourth-quarter momentum.

If Congress doesn’t finance the new fiscal year on Oct. 1, hundreds of thousands of government workers will be furloughed, and financial supervision and medical research will be stopped.

Goldman Sachs calculated that the closure would lower fourth-quarter GDP growth by two-tenths of a percentage point per week, depending on its duration.

“Regardless of duration, federal employee furloughs should subtract 0.15 percentage point for each week of shutdown,” stated Goldman Sachs economist Alec Phillips. “We estimate the indirect private sector hit at 0.05 percentage points per week, but this may be smaller in a short shutdown and larger in a long shutdown.”

The United Auto Workers union strike against General Motors (GM.N), Stellantis (STLAM.MI), and Ford Motor F.N.N) is expected to lower auto output and raise prices at a time when inflation is rising. The PCE, excluding food and energy, rose by 3.7% in the second quarter.

In its second week, the strike is affecting supply networks.

After the shutdown and auto strike, the job market should remain tight. In a second Labor Department report on Thursday, initial state jobless claims jumped 2,000 to 204,000 for the week ending Sept. 23. For the week, economists predicted 215,000 claims.

This month, 2023 claims continued to fall between 194,000 and 265,000. After an initial week of aid, a proxy for hiring, the claims report showed 12,000 more persons getting benefits to a still-low 1.670 million in the week ending Sept. 16.

The government polled households for September’s unemployment rate amid ongoing claims. Continuing claims fell between August and September. August unemployment rose to 3.8% from 3.5% in July.

“The job market is in good shape,” said Comerica Dallas chief economist Bill Adams. “August’s unemployment rate increase is unlikely to signal an economic downturn.”