GDP grew at 2.4% pace in Q2, beating expectations despite calls for recession

The US economy showed few signs of slowing in the second quarter, as GDP grew at a faster pace than expected during the period. Department of Commerce reported Thursday.

Gross domestic product, the sum of all goods and services activities, grew at a 2.4% annual rate for the April-to-June period, bettering Dow Jones’ 2% consensus estimate. GDP grew at 2% in the first quarter.

Markets rallied after the report, with stocks poised for a positive start and Treasury yields higher.

Consumer spending drove the solid quarter, aided by increases in non-residential fixed investment, government spending and inventory growth.

Perhaps equally important, inflation was kept under control during this period. The personal consumption expenditure price index rose 2.6%, down from a 4.1% increase in the first quarter and well below Dow Jones’ forecast of a 3.2% gain.

Consumer spending, based on the department’s personal consumption expenditure index, increased 1.6% and accounted for 68% of all economic activity during the quarter. This helped the market grow by 4.2% in the first quarter, but still showed resilience amid high interest rates and persistent inflation.

In the face of persistent calls for a recession, the economy showed surprising resilience despite a series of Federal Reserve interest rate hikes that most Wall Street economists and even central bank economists were expecting to cause a contraction. Are.

“It’s great to have another quarter of positive GDP growth alongside continued slowing inflation,” said Steve Rick, chief economist at TrueStage. “Following the resumption of interest rate hikes yesterday, it is encouraging to see the aggressive growth cycle in action as inflation continues to decline. Consumers are getting relief from the rising cost of core goods, and the US economy is off to a strong first start half of the year.”

Growth has not registered a negative reading since the second quarter of 2022, when GDP contracted at a rate of 0.6%. That was the second consecutive quarter of negative growth, meeting the technical definition of a recession. However, the National Bureau of Economic Research is the official arbiter of expansion and contraction, and some expect it to call this period a recession.

Thursday’s report indicated a broad increase.

Gross private household investment increased by 5.7% after a decline of 11.9% in the first quarter. The increase in strength was fueled by a 10.8% increase in equipment and a 9.7% increase in structures.

Government spending increased by 2.6%, including a 2.5% increase in defense spending and 3.6% at the state and local level.

Separate reports on Thursday brought more positive economic news.

durable goods orders According to the Commerce Department, goods such as vehicles, computers and equipment rose 4.7% in June, well above the 1.5% estimate. Too, weekly jobless claims The total was 221,000, a decline of 7,000 and below the 235,000 estimate.

Strong job gains and a resilient consumer are at the heart of a growing economy.

Non-farm payrolls are projected to increase by about 1.7 million so far in 2023 and the 3.6% unemployment rate for June is the same as a year ago. Meanwhile, consumers are continuing to spend and sentiment has been rising in recent months. For example, the University of Michigan’s sentiment survey reached its highest level in nearly two years in July.

Economists expect the Fed rate hike to lead to a credit contraction that will eventually erode last year’s growth momentum. Fed hikes 11 times since March 2022, most recent coming Wednesday a quarter point increase This pushed the central bank’s key lending rate to its highest level in more than 22 years.

The market is betting that Wednesday’s hike will be the last of this tightening cycle, though officials like Chairman Jerome Powell It is said that no decision has been taken on the future policy path.

Housing has been a particular soft spot after the initial boom covid pandemic, However, prices are showing signs of rising again, even as the real estate market remains burdened by a supply crunch.

After Wednesday’s rate hike, the Fed described growth as “moderate,” a slight boost from its characterization of “modest” in June.

Yet the signs of trouble remain.

The market is betting on a recession, with the 2-year Treasury yield well above the 10-year note. That phenomenon, called an inverted yield curve, has a nearly perfect record for signaling a recession over the next 12 months.

Similarly, the inversion of the 3-month and 10-year curves is pointing to a 67% chance of contraction by the end of June. a new york fed gauge,

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