The economic slowdown that wasn't
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Economists anticipated lackluster economic growth last quarter. Instead, growth surged, a sign of the still-resilient economy.
Why it matters: The soft landing was very much intact this spring. Price pressures eased, but not at the expense of the strong economy and labor market.
What they're saying: "While these estimates will be revised a few times, they do point to the continued strength of the U.S. economy despite the high interest rate environment we've been in for over a year," NerdWallet senior economist Elizabeth Renter wrote Thursday morning.
The big picture: The economy grew at an annualized 2.8% in the second quarter, up from the modest gain of 1.4% at the start of 2024.
- The consumer was the key driver of last quarter's strong economic growth. Personal consumption expenditures increased at a 2.3% annualized rate, gaining from the 1.5% pace in the prior period. That category contributed 1.6 percentage point to the increase in GDP figure.
- Another big contributor to growth: Businesses stocked up inventories at a strong rate, adding 0.8 percentage point to GDP. Given that consumer spending was so brisk last quarter, the stocking was likely to keep up with current demand — not to make up for prior shortfalls.
Capital spending rose at a 5.2% annualized rate, reflecting a surge in spending on equipment (+11.6%) and continued investment in intellectual property (+4.5%).
- The jump in spending on equipment and intellectual property "affirms our conjecture that the American economy is in the midst of a productivity boom that in turn will result in an improved standard of living across the economy for all cohorts," RSM economist Joe Brusuelas wrote in a note.
Between the lines: A narrower measure of growth affirms the economy's resiliency in the second quarter.
- Final domestic private sector sales — which strips out volatile categories like inventory shift, government spending and trade — increased at a 2.6% annualized rate, the same as the previous quarter.
The intrigue: The second quarter saw strong growth alongside lower inflation — a reversal of dynamics observed in the January to March period, when inflation resurged and headline GDP moderated.
- Still, other indicators point to potential risks for the economy. The unemployment rate has risen in recent months to 4.1%, the highest since 2021. Should the labor market lose steam, that could slow consumer spending and crimp the economy.
What to watch: The Federal Reserve holds a policy meeting next week. No rate changes are expected, though officials look likely to lay the groundwork for a rate cut in the fall.
