US Economy Picks Up Steam In The Second Quarter, With Decreasing Pricing Pressure


07/25/2024



In the second quarter, the U.S. economy expanded more quickly than anticipated because to strong increases in corporate investment and consumer spending, but inflationary pressures decreased, maintaining expectations of a Federal Reserve interest rate drop in September.
 
Increased government spending and inventory buildup helped spur growth last quarter, according to the Commerce Department's preliminary estimate on the GDP for the second quarter, which was released on Thursday. However, the recovery of the housing market stagnated and became a minor drag on the economy. GDP growth was negatively impacted as the trade imbalance continued to increase.
 
Thanks to a robust labour market, the economy continued to outperform its worldwide counterparts even after the U.S. central bank hiked interest rates significantly in 2022 and 2023.
 
"Economic growth is solid, not too hot and not too cold," said 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."
 
In its preliminary estimate of GDP for the second quarter, the Commerce Department's Bureau of Economic Analysis stated that the gross domestic product grew at an annualised rate of 2.8% last quarter. Reuters polled economists, and they predicted a 2.0% annual growth rate in GDP. The range of estimates was 1.1% to 3.4%. In the first quarter, the economy expanded at a 1.4% annual pace.
 
1.8% growth is regarded by U.S. central bank authorities as the non-inflationary growth rate. Even still, growth was less rapid than the 4.2% rate recorded in the second half of the previous year.
 
Over two-thirds of the economy is made up of consumer expenditure, which grew at a rate of approximately 2.3% after declining to a 1.5% pace in the January–March quarter.
 
Increased expenditures on utilities, housing, healthcare, and leisure were the main drivers of spending.
 
Also, consumers increased their spending on commodities such as energy products, furniture, durable home equipment, recreational vehicles and goods, and automobiles and components.
 
After increasing at a 1.6% pace in the first quarter, equipment expenditure jumped at an 11.6% rate, spurring business investment. Additionally, companies added to their inventory, which grew at a rate of $71.3 billion compared to a pace of $28.6 billion in the previous quarter.
 
Last quarter's growth was strong, even when inventories were taken out, with domestic demand increasing at a 2.6% annual rate. The improvement in the January–March quarter was mirrored by the rise in final sales to private domestic buyers.
 
An improvement in productivity would likely decrease the rate of rise in labour costs and, eventually, pricing pressures, which is encouraging given the rise in GDP growth.
 
In the wake of a 3.7% surge in the first quarter, the personal consumption expenditures (PCE) price index—which does not include the volatile food and energy components—rose at a 2.9% rate. This is good news for U.S. central bank policymakers as they prepare for their two-day policy meeting next week.
 
One of the inflation indicators that the Fed monitors in order to reach its 2% objective is the so-called core PCE price index. The gross domestic purchasing price index, the government's most comprehensive measure of economic prices, increased at a 2.3% rate in the January–March quarter after surging at a 3.1% rate in the previous quarter.
 
For the past year, the Fed has kept its benchmark overnight interest rate within the current range of 5.25% to 5.50%. Since 2022, it has increased its policy rate by 525 basis points. Starting in September, the financial markets anticipate three rate reductions this year.
 
Although the economy is growing at a steady rate, the second half of the year's forecast is unclear. The slowdown in the labour market will have an effect on pay growth.
 
The saving rate is significantly lower than it was before the epidemic, and analysts believe that the majority of the Fed's rate increases have not yet been felt. Revenues for municipal and state governments are also declining, which might reduce expenditure.
 
Concerns have also been raised about additional tariffs, which would force companies to front-load goods in the event that former President Donald Trump wins the presidency again in November.
 
However, monetary policy relaxation is predicted this year, thus a recession is not projected.
 
(Source:www.aol.com)