The US economy displayed resilience and expanded at a rate of 2.1% annually from April to June, despite increased borrowing costs. This figure is a slight downgrade from the initial estimate of 2.4%. The Commerce Department’s second estimate reveals a slight acceleration from the previous quarter’s 2% growth rate. Despite the Federal Reserve’s efforts to control inflation through interest rate hikes, the economy continues to expand, with employers hiring and consumers spending. The latest report on the nation’s gross domestic product (GDP) highlights growth driven by consumer spending, business investment, and government outlays. Additionally, the measure of consumer prices in the report indicates a cooling of inflation, which may relieve pressure on the Federal Reserve to further raise interest rates. The lower growth and weaker inflation increases are seen as positive news for the Fed. Consumer spending, accounting for approximately 70% of the US economy, increased at a 1.7% annual pace in the April-June quarter, a decent gain although lower than the first quarter’s 4.2%. Business investment, excluding housing, rose at a strong 6.1% annual rate last quarter, while investment in housing declined due to higher mortgage rates. The US economy, being the largest globally, has proven surprisingly resilient amidst the Federal Reserve’s aggressive campaign against inflation. Since March of the previous year, the benchmark rate has been raised 11 times, resulting in higher borrowing costs. Despite predictions of an imminent recession, the job market has remained healthy, with job openings surpassing pre-pandemic levels. Year-over-year inflation has gradually decreased since its peak in June 2022 at 9.1%, with last month’s figure standing at 3.2%. Core inflation, excluding food and energy costs, has also shown a modest rise. The personal consumption expenditures index, a measure of prices in the GDP report, rose by 2.5% annually last quarter, compared to 4.1% in the previous quarter and the smallest increase since the end of 2020. Throughout the period of rising rates, the job market has been strong, with an average of 258,000 jobs added each month this year, although this average has slightly decreased in the past three months to 218,000. Recent reports indicate a slight weakening in the job market, with fewer job openings and a decline in the number of individuals quitting their jobs. However, job openings still exceed pre-pandemic levels, and the unemployment rate remains at 3.5%. Economists predict that the upcoming August jobs report will indicate a slowdown in hiring, yet employers are still expected to add 170,000 jobs. The combination of decreasing inflation, steady economic growth, and consistent hiring has raised hopes for a smooth landing, where the Federal Reserve successfully controls inflation without causing a recession. The final calculation of last quarter’s growth will be released next month, following the government’s second estimate.
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