Economy shatters forecasts for GDP growth
WASHINGTON — The nation’s economy accelerated last quarter at a strong 2.8% annual pace, with consumers and businesses helping drive growth despite the pressure of continually high interest rates.
Thursday’s report from the Commerce Department said the gross domestic product — the economy’s total output of goods and services — picked up in the April-June quarter after growing at a 1.4% pace in the January-March period. Economists had expected a weaker 1.9% annual pace of growth.
Helping boost last quarter’s expansion was consumer spending, the heart of the U.S. economy. It rose at a 2.3% annual rate in the April-June quarter, up from a 1.5% pace in the January-March
period. Spending on goods, such as cars and appliances, increased at a 2.5% rate after falling at a 2.3% pace in the first three months of the year.
Business investment was up last quarter, led by a 11.6% annual increase in equipment investment. Growth also picked up because businesses increased inventories. A surge in imports, which are subtracted from GDP, shaved about 0.9 percentage point from the April-June growth.
Despite last quarter’s uptick, the U.S. economy has cooled in the face of the highest borrowing rates in decades, engineered by the Federal Reserve to fight high inflation. From mid-2022 through 2023, annualized GDP growth had topped 2% for six straight quarters. In last year’s final two quarters, GDP expanded by robust rates of 4.9% and 3.4%.
Fed officials have made clear that with inflation edging toward their 2% target level, they’re prepared to start cutting interest rates soon, something they’re widely expected to do in September.
“This is a perfect report for the Fed,” Olu Sonola, head of economic research at Fitch Ratings, said. “Growth during the first half of the year is not too hot, inflation continues to cool and the elusive soft landing scenario looks within reach.”