US economy jumps to a 2.4% growth rate

WASHINGTON, D.C.: The US economy surprisingly accelerated to a 2.4-percent annual growth rate from April through June, showing continued resilience in the face of steadily higher interest rates resulting from the Federal Reserve’s (Fed) 16-monthlong fight to bring down inflation.

Thursday’s estimate from the Commerce Department indicated that the gross domestic product (GDP) picked up from the 2-percent growth rate in the January-March quarter. Last quarter’s expansion was well above the 1.5-percent annual rate that economists had forecast.

Driving last quarter’s growth was a burst of business investment. Excluding housing, business spending surged at a 7.7-percent annual rate, the fastest such pace since early 2022. Companies plowed more money into factories and equipment. Increased spending by state and local governments also helped fuel the economy’s expansion in the April-June quarter.

“This is a strong report, confirming that this economy continues to largely shrug off the Fed’s aggressive rate increases and tightening credit conditions,” said Olu Sonola, head of US economics at Fitch Ratings.

In fighting inflation, which last year hit a four-decade high, the Fed has raised its benchmark rate 11 times since March 2022, most recently on Wednesday. The resulting higher costs for a broad range of loans have taken a toll on growth.

Still, they have yet to tip the United States into a widely forecast recession. Optimism has been growing that a recession is not coming after all, that the Fed can engineer a so-called soft-landing — slowing the economy enough to bring inflation down to its 2-percent annual target without wrecking an expansion of surprising durability.

This week, the International Monetary Fund (IMF) upgraded its forecast for US economic growth for all of 2023 to 1.8 percent. Though that would be down from 2.1-percent growth for 2022, it marked an increase from the 1.6-percent growth that the IMF had predicted for 2023 back in April.

At a news conference on Wednesday, Chairman Jerome Powell revealed that the central bank’s staff economists no longer foresee a recession in the United States. In April, the minutes of the central bank’s March meeting had revealed that the Fed’s staff economists envisioned a “mild” recession later this year.

In his remarks, Powell noted that the economy has proved resilient despite the Fed’s rapid rate hikes. And he said he still thinks a soft landing remains possible.

By any measure, the American job market has shown itself to be remarkably strong. At 3.6 percent in June, the unemployment rate hovers just above a five-decade low. A surge in retirements after Covid-19 hit in early 2020 has contributed to a shortage of workers across the country, forcing many companies to raise wages to attract or keep staffers.

Higher pay and job security are giving Americans the confidence and financial wherewithal to keep shopping. Indeed, consumer spending, which drives about 70 percent of economic activity, rose at a 4.2-percent annual rate from January through March, the fastest quarterly pace in nearly two years.

The Conference Board, a business research group, reported on Tuesday that Americans this month are in their sunniest mood in two years, based on the board’s reading of consumer confidence.

Indeed, many consumers are finally enjoying some relief from spiking prices: Year-over-year inflation, which peaked at 9.1 percent in June 2022, has eased consistently ever since. Inflation-adjusted hourly pay rose 1.4 percent in June from a year earlier, the sharpest such gain since early 2021.

“Inflation is easing, moving in the right direction,” said Rubeela Farooqi, chief US economist at High Frequency Economics.

Farooqi suggested, the surprisingly healthy GDP report makes it somewhat more likely that the Fed will raise rates again because the economy appears to be “much stronger” than what the central bank would like to see. With stronger growth comes a greater likelihood of high inflation.

But Thursday’s GDP report contained some encouraging news for the Fed’s inflation fighters: One measure of prices rose at a 2.6-percent annual rate last quarter, down from a 4.1-percent pace in the January-March quarter, to the lowest level since the end of 2020.

Though that is still above the Fed’s 2-percent inflation target, it amounts to “another welcome sign of disinflation,” said Mike Fratantoni, chief economist at the Mortgage Bankers Association.