Can anything slow the U.S. economy?
Despite high interest rates and inflation, the economy grew solidly in the second quarter as a slowdown in consumer spending was offset by a rise in business investment.
The nation’s gross domestic product, the value of all goods and services produced in the U.S., expanded at a seasonally adjusted annual rate of 2.4% in the April-June quarter, the Commerce Department said Thursday. That’s up from 2% growth early in the year and above the 1.8% rise predicted by economists in a Bloomberg survey.
Has consumer spending decreased?
Consumer spending, which makes up about 70% of economic activity, grew a modest 1.6% following a 4.2% advance earlier in the year.
The buoyant American consumer has helped the economy defy recession forecasts for nearly a year. Households have relied on $2.6 trillion in pandemic-related savings to cushion blows from the Federal Reserve’s sharp interest rate hikes and easing, but still elevated, inflation.
But those cash reserves have dwindled to several hundred billion dollars by some estimates. Meanwhile, student loan payments suspended during the health crisis are set to resume in September. And stricter bank lending standards are likely to become a bigger constraint on outlays in coming months, says Gregory Daco, chief economist of EY Parthenon.
Will there be a recession in 2023 or 2024?
Many economists still believe a recession is likely later this year or in 2024.
At the same time, wage growth has started outpacing inflation, reversing the prior trend and giving households more purchasing power. And while job growth is slowing it’s still sturdy, averaging 244,000 a month last quarter.
Those developments – along with a nascent housing recovery and a boom in infrastructure spending following a sweeping 2021 U.S. law – have a growing number economists believing Fed rate hikes could tame inflation without sparking a recession. Such a feat is known as a “soft landing.”
