The US economy maintained a fairly solid pace of growth in the second quarter and activity appears to have accelerated this quarter, but a looming government shutdown and an ongoing strike by auto workers are dimming the outlook for the rest of 2023.
Inflation also remains elevated and tight labour market conditions continue to prevail, with the number of Americans filing new claims for unemployment benefits rising slightly last week, the reports showed yesterday.
Some economists believe the economy’s resilience combined with high inflation could give the Federal Reserve ammunition to raise interest rates again in November. Others, however, expect the darkening cloud over the economy would discourage the US central bank from tightening monetary policy further.
“The big news is not that nothing has changed, but that the economy remains resilient, inflation remains elevated and the Fed’s worst-case scenario, stagflation, has been avoided for now,” said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance in Charlotte, North Carolina. “Given how much the Fed has raised rates, it’s impressive that the economy is still growing at this pace.”
Expectations
Gross domestic product increased at an unrevised 2.1 per cent annualised rate last quarter, the government said in its third estimate of GDP for the April-June period. That was in line with economists’ expectations. A downgrade to growth in consumer spending to a lacklustre 0.8pc rate from the previously reported 1.7pc pace was offset by a sharp upward revision to business investment in factories amid a push by the Biden administration to bring semiconductor manufacturing back to the United States.
Households spent less on utilities and motor vehicle maintenance and repairs as well as on furnishings and long-lasting household equipment, clothing and footwear than previously estimated.
Growth for the first quarter was raised to a 2.2pc rate from the previously reported 2.0pc pace. The economy is expanding at a pace well above what Fed officials regard as the non-inflationary growth rate of around 1.8pc. Since March 2022, the US central bank has raised its benchmark overnight interest rate by 525 basis points to the current 5.25pc-5.50pc range.
The government also revised GDP data from 2017. The economic picture was little changed from 2017 to 2022, with GDP growing at an average annual rate of 2.2pc, up from the previously estimated 2.1pc pace.
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