The US economy grows at 2.4% in the second quarter

The US economy grew faster than expected during the second quarter 2023. This was despite the Federal Reserve’s aggressive campaign to raise interest rates.

According to preliminary data released on Thursday by the Department of Commerce, the world’s largest economy grew 2.4% on an annualised base between April and Juni.

This was a significant acceleration of the 2 percent growth rate from the first quarter and well above the 1.8% rate predicted by economists.

The growth in consumer spending slowed down after an unusually high start to the year, but this was more than offset due to strong business investments in inventories and fixed asset.

Gregory Daco, EY Parthenon’s chief economist, said: “We are seeing some encouraging signs for resilience. Especially when we look at the private sector demand.” “Whether it’s consumers or businesses, the desire to spend and grow is still there, but with a little more caution.”

The data come a day after US central bank increased its benchmark interest rate as part of efforts to control inflation.

The consumer price index fell from 9 per cent at the peak in June 2022, to only 3 per cent last week . Meanwhile, unemployment is still near record lows while consumer confidence has increased.

Recent data have raised the hopes of economists and investors alike that the central banks will be able to achieve the rare feat a “soft landing” – bringing inflation under the control of the bank without causing significant economic damage. Others worry that the economy will be too resilient to get inflation to the Fed’s target of 2 percent.

Fed chair Jay Powell said on Wednesday that his “basecase is that we’ll be able achieve inflation moving down to our goal without the type of downturn really significant that results in large levels of job loss”.

He also pointed out the risks. “At margins, stronger economic growth could eventually lead to higher inflation, and this would require a response from monetary policy. We’ll be monitoring that closely.”

Eric Winograd is a senior economist with AllianceBernstein. He said, “I think the most important thing that I can take away from [Thursday’s] data is that households are still consuming. . . “I don’t believe we should wait for the labour market to deteriorate before expecting the consumer to weaken.”

This week, the optimistic outlooks and comments from several US firms painted a picture that domestic consumers are resilient.

Chris Kempczinski, the chief executive of McDonald’s, told analysts that the chain’s customers had not changed “dramatically” in recent years. He said that although the mood was improving, it is still far from where it was in 2019.

Royal Caribbean also raised its earnings guidance by 33 percent after reporting Thursday that the demand for cruises was strong and spending onboard was high in its second quarter. Meta reported positive revenues this week, a sign that a digital advertising slump of a year may be ending.

The increase in state and local government spending boosted growth. EY’s Daco stated that the increases could be a reflection of the initial stimulus provided by programmes like the Inflation Reduction Act or Chips Act.

Joe Biden has dismissed the idea that the US’s economy is growing at an accelerated pace because it was inevitable. He said that “Bidenomics is in action, growing economy from middle out, bottom up and not top down,” in a press release, referring the neologism of his economic agenda.

Wall Street saw yields for US government bonds rise shortly after data was released. They continued to climb throughout the session. The 10-year Treasury yield increased by 0.15 percentage points, to 4 percent. This is a continuation of the increase earlier in the session. The yield on the two-year bond, which is sensitive to expectations of short-term interest rates, rose by 0.10 percentage points, to 4.93 percent. When prices drop, yields increase.

US stocks have reversed their early gains. The S&P 500 index and Nasdaq Composite are both down around 0.6 percent at the closing bell on Thursday.