The U.S. economy proved its resilience in the second quarter, surpassing economists’ expectations and brushing off concerns about high interest rates set by the Federal Reserve. According to the Bureau of Economic Analysis, the U.S. economy grew at an annualized pace of 2.8 percent from April to June, up from 1.4 percent in the previous quarter. The driving force behind this growth was a 2.3 percent increase in consumer spending, which accounted for 68 percent of the overall growth. Additionally, private inventory investment and nonresidential fixed investment contributed to the expansion.
Government spending also played a role in the growth, increasing by 3.1 percent and accounting for 0.53 percent of the real GDP growth rate. However, some experts remain cautious about the future outlook. Scott Anderson, the chief U.S. economist at BMO, believes that economic activity is likely to slow down in the second half of the year due to lackluster earnings reports, signs of consumer fatigue, and uncertainty surrounding election and fiscal policies.
Despite these concerns, a chorus of economists suggests that the U.S. economy will reaccelerate later this year and experience faster activity in 2025. The Conference Board forecasts that consumer spending will cool down, leading to a slower GDP growth rate in the third quarter. However, they anticipate that GDP growth will pick up in 2024 as inflation subsides and the Federal Reserve cuts interest rates.
Recent data also indicate that shoppers are becoming more conscious, with retail sales stalling in June and personal spending only increasing slightly in May. As inflation eases and the economy slows, the futures market predicts a quarter-point rate cut at the September policy meeting.
The International Monetary Fund (IMF) projects that the United States will be the top-performing advanced economy this year, growing at a rate of 2.6 percent. However, they anticipate a slowdown in real GDP growth next year, easing to 1.9 percent. The IMF suggests that Canada could be the best-performing advanced economy in 2025, expanding by 2.4 percent.
While some analysts raise concerns about a potential slowdown, Torsten Slok, the chief economist at Apollo, points to daily and weekly data that show ongoing steady growth. He believes that if the Federal Reserve starts cutting rates in September, stock prices will rise, credit spreads will tighten, and growth and inflation will reaccelerate.
Early models indicate that the July-September period could be a solid quarter, with the New York Fed Staff Nowcast projecting 2.66 percent growth.
In other economic news, durable goods orders plunged by 6.6 percent in June, and initial jobless claims eased to 235,000 for the week ending July 20. Continuing jobless claims also decreased to 1.85 million.
