Axios Macro

July 25, 2024
Today's GDP report puts economic slowdown fears to rest, at least for the moment.
- More on the better-than-expected numbers below, plus a look at other data out this morning and tomorrow that shed light on the job market and inflation.
Today's newsletter, edited by Kate Marino and copy edited by Katie Lewis, is 639 words, a 2½-minute read.
1 big thing: The slowdown that wasn't
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 this 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.
2. But wait, there's more!


Other data released this morning also lines up with a benign reading of the growth outlook.
Driving the news: The number of Americans filing new claims for jobless benefits fell last week to 235,000, from 245,000 the previous week, per Department of Labor data. The less-volatile four-week moving average was stable at 235,500.
- The number of continuing jobless claims also fell, to 1.851 million from 1.86 million.
- The jobless claims numbers shifted higher in April and May, but recent readings point to stabilization at those slightly higher — and not particularly alarming — levels.
There was a steep decline in new orders for durable goods in June, according to data out from the Census Bureau this morning — down 6.6%.
- But that was driven by the volatile aircraft sector. An indicator of underlying strength in business investment included in that report — new orders for nondefense capital goods excluding aircraft — rose 1% in June after falling in May.
- That points toward the strong equipment spending seen in the Q2 GDP numbers continuing through the summer.
What's next: The Commerce Department releases June personal income and consumption data tomorrow at 8:30am. It will also include the Personal Consumption Expenditures Price Index that the Fed targets.
- Those numbers are already factored into the Q2 GDP data released this morning.
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