Jul 27, 2023 - Economy

U.S. economic growth unexpectedly picks up in second quarter

Data: Bureau of Economic Analysis; Chart: Axios Visuals
Data: Bureau of Economic Analysis; Chart: Axios Visuals

The U.S. economy expanded at a 2.4% annual rate in the second quarter, a stronger pace of growth than economists anticipated, the Commerce Department said on Thursday.

Why it matters: The data points to a resilient economy that continues to surprise to the upside, despite aggressive attempts by the Fed to cool off activity.

  • Forecasters expected gross domestic product to increase at an annual rate of 1.7%. The economy expanded at a 2% annualized pace in the first three months of 2023.

Details: The economic growth in the second quarter reflected increases in consumer spending, a jump in capital spending from businesses, and an increase in private sector inventories. A drop in U.S. exports, which act as a drag on economic growth, is among the factors that weighed on the economy.

  • Consumers continued to spend at a strong pace, though slower relative to the prior quarter. Consumption rose at a 1.6% annualized rate, backing off from the 4.2% surge in the first quarter.
  • Consumers spent on services — with the biggest increases in spending in categories like housing, health care, financial services, insurance and transportation. The increase in goods spending was led by recreational goods and vehicles and gasoline.

Of note: The housing sector has weighed on the economy the past several quarters — a result of steep mortgage rates crimping housing demand, which had led to a slowdown in homebuilding activity.

  • So-called residential investment continued to contract at a 4.2% annualized rate, roughly the same pace as the prior quarter.

Meanwhile, non-residential fixed investment — how much businesses are spending on new buildings, equipment and more — rose at a 7.7% annualized rate. That's a big jump from the 0.6% pace in the prior quarter.

The big picture: The data comes as the Fed continues its rate hiking campaign that began in 2022 — an effort to slow the economy down (and in turn, cool inflation) without tipping it into a recession.

  • The Fed raised rates for the 11th time on Wednesday and did not signal whether or not it would implement another increase at its next policy meeting in September.
  • Fed chair Jerome Powell said it wants to evaluate more economic data to see how its previous moves are working through the economy. Notably, Powell said staff economists at the Fed were no longer predicting that the economy would enter a recession later this year.

What to watch: The GDP data is always revised by the government in the weeks ahead, which may paint a stronger or weaker picture of growth than initially thought.

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