In a positive turn of events, the second quarter of the year has seen an acceleration in economic growth in the United States. This shows promising signs that the country may avoid a recession, despite interest rates reaching a two-decade high.
According to the Commerce Department’s report on Thursday, the nation’s economic output expanded at a 2.4% annual rate between April and June, demonstrating an increase in momentum. This growth surpasses the 2% rate seen in the previous quarter, defying the predictions of economists who anticipated a slowdown.
While consumer spending experienced a slowdown, growing at a rate of 1.6% compared to 4.2% in the first quarter, this can be attributed to higher borrowing costs. On the other hand, business investment and state and local government spending experienced faster growth.
Olu Sonola, head of U.S. economics at the Fitch Group, expressed his confidence in the economy, stating that it remains resilient to the Federal Reserve’s aggressive rate increases and tighter credit conditions. He further noted that the U.S. economy continues to grow above average, leading the Fed to contemplate whether additional measures are necessary to curb this momentum.
In contrast to earlier predictions by the Fed’s staff, Fed Chair Jerome Powell announced that a recession is no longer expected to occur this year. Powell praised the economy’s resilience in the face of Fed rate hikes, emphasizing the tightness of the job market.
Goldman Sachs, in a recent assessment, decreased the likelihood of a recession in 2023 to just 20%. Additionally, the International Monetary Fund revised its forecast for U.S. economic growth this year from 1.6% to 1.8%.
Despite a slower pace of hiring compared to previous years, employers added a solid 209,000 jobs in June. The unemployment rate remains at 3.6%, the same level observed since the Fed initiated interest rate hikes in March 2022. Notably, the percentage of working-age individuals with jobs reached a new high in the last month.
Moreover, inflation, which peaked last summer, has now slowed down to an annual rate of 3%. For the first time in two years, Americans’ wages are growing at a faster rate than prices.
In conclusion, the U.S. economy is showing signs of resilience and growth, with indications that a recession can be avoided this year. Steady job growth, a decline in inflation, and rising wages provide hope for a stable economic outlook.
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