WASHINGTON (AP) — The U.S. economy grew at a healthy annual pace of 3% last quarter, fueled by strong consumer spending and business investment, the government said Thursday in an upgrade of its initial assessment.
The Commerce Department had previously estimated that the country’s gross domestic product (total output of goods and services) grew 2.8% from April through June.
Growth in the second quarter showed a strong acceleration from the sluggish 1.4% growth in the first three months of 2024.
Consumer spending, which accounts for about 70% of U.S. economic activity, rose at an annual rate of 2.9% last quarter, up from 2.3% in the government’s initial estimate. Business investment rose at a rate of 7.5%, led by a 10.8% jump in equipment spending.
Thursday’s report reflected an economy that remains resilient despite pressure from persistently high interest rates. The state of the economy is weighing heavily on voters ahead of November’s presidential election. Many Americans remain peeved by high prices even as inflation has fallen from a 40-year high in mid-2022.
However, consumer sentiment surveys by the Conference Board and the University of Michigan show that confidence in the economy has increased recently.
“The GDP revisions show that the U.S. economy was in good shape through mid-2024,” said Bill Adams, chief economist at Comerica Bank. “Solid growth in consumer spending propelled the economy in the second quarter, and the increase in consumer confidence in July suggests that it will continue to drive growth in the second half of the year.”
The latest GDP estimate for the April-June quarter included figures showing inflation continues to ease but remains just above the Federal Reserve’s 2% target. The central bank’s favorite gauge of inflation — the personal consumption expenditures index, or PCE — rose at an annual rate of 2.5% last quarter, down from 3.4% in the first quarter of the year. And excluding volatile food and energy prices, so-called core PCE inflation grew at a 2.7% pace, down from 3.2% in January through March.
Both PCE inflation figures released Thursday showed a slight improvement from the government’s initial estimate.
A GDP category that measures the economy’s underlying strength rose at a healthy annual rate of 2.9%, up from 2.6% in the first quarter. The category includes consumer spending and private investment but excludes volatile items such as exports, inventories and government spending.
To counter rising prices, the Fed raised its benchmark interest rate 11 times in 2022 and 2023, raising it to a 23-year high and sending annual inflation down from a peak of 9.1% to 2.9% last month. The resulting much higher borrowing costs for consumers and businesses were widely expected to trigger a recession. Still, the economy has continued to grow and employers have continued to hire.
With inflation hovering just above the Fed’s 2% target and likely to decline further, Chairman Jerome Powell has effectively declared victory over inflation. As a result, the Fed is poised to cut its benchmark interest rate when it meets again in mid-September.
A sustained period of lower Fed rates would be intended to produce a “soft landing,” in which the central bank successfully tames inflation, preserves a healthy labor market and prevents a recession from setting in. Lower rates on auto loans, mortgages and other forms of consumer lending would likely follow.
The central bank has recently been more concerned with supporting the labor market, which is gradually weakening, than with continuing to combat inflation. The unemployment rate has risen for four months in a row, to 4.3%, still low by historical standards. The number of vacancies and the pace of hiring have also fallen, although they remain at relatively solid levels.
Thursday’s report was the Commerce Department’s second estimate of GDP growth in the April-June quarter. It will release its final estimate late next month.
