Washington — The United States economy has shown strong growth in the last quarter, with a 2.8% annual pace, thanks to the contributions of both consumers and businesses. This growth has been achieved despite the challenges posed by high interest rates.
According to the latest report from the Commerce Department, the gross domestic product (GDP) has picked up in the April-June quarter, after a slower growth rate of 1.4% in the previous quarter. This has surpassed the expectations of economists, who had predicted a weaker growth rate of 1.9%.
The report also indicates that inflation is gradually easing, although it still remains above the Federal Reserve’s target of 2%. The central bank’s preferred inflation gauge rose at a rate of 2.6% in the last quarter, down from 3.4% in the first quarter of the year. Excluding volatile food and energy prices, core PCE inflation increased at a rate of 2.9%, down from 3.7% in the previous quarter.
These figures are a testament to the fact that the US economy is on track to achieve a rare “soft landing”. This means that the Fed’s efforts to control inflation through high interest rates have been successful, without causing a recession.
One of the key drivers of last quarter’s growth was consumer spending, which is the backbone of the US economy. It increased at a rate of 2.3%, up from 1.5% in the previous quarter. This was mainly due to an increase in spending on goods such as cars and appliances, which grew at a rate of 2.5% after a decline of 2.3% in the first quarter.
Business investment also saw a boost last quarter, with equipment investment increasing at an annual rate of 11.6%. Additionally, businesses also increased their inventories, contributing to the overall growth. However, a surge in imports, which are subtracted from the GDP, had a negative impact of 0.9 percentage points on the growth rate.
Despite the uptick in growth last quarter, the US economy, being the world’s largest, has been affected by the high interest rates. From mid-2022 to 2023, the annualized GDP growth had exceeded 2% for six consecutive quarters. In the last two quarters of 2022, the GDP grew at a robust rate of 4.9% and 3.4% respectively.
In light of the current economic situation, the Federal Reserve has indicated that it is prepared to start cutting interest rates soon. This is widely expected to happen in September. Olu Sonola, head of economic research at Fitch Ratings, believes that the latest GDP numbers are a perfect report for the Fed. He also stated that the elusive “soft landing” scenario is now within reach, with growth not being too hot and inflation continuing to cool.
The state of the economy has become a major focus for Americans as the presidential campaign gains momentum. While inflation has significantly slowed down from 9.1% in 2022 to 3% this year, prices still remain higher than pre-pandemic levels.
The economic slowdown this year can be attributed to the higher borrowing rates for home and auto loans, credit cards, and business loans. These rates were a result of the Fed’s aggressive series of interest rate hikes, which totaled to 11 in 2022 and 2023. This was a response to the sudden surge in inflation that occurred in the spring of 2021, as the economy rebounded quickly from the COVID-19 recession. The situation was further exacerbated by Russia’s invasion of Ukraine in February 2022, which caused a spike in prices for energy and grains globally.
Economists had predicted that the high borrowing costs would push the US into a recession. However, the economy continued to grow, with consumers being the driving force. Their confidence was boosted by a strong job market and savings accumulated during the COVID-19 lockdowns.
The slowdown at the beginning of this year was mainly due to two factors that can vary significantly from quarter to quarter – a surge in imports and a drop in business inventories. These trends do not reflect the true health of the economy.
In conclusion, the latest GDP report is a positive indication that the US economy is on a steady path towards growth and stability. With inflation under control and consumer spending remaining strong, the country is on track to achieve a
