U.S. GDP expanded by a respectable 2.4 percent in this year’s second quarter, the commerce department reported. 

The growth rate beat the 2-percent consensus among economists polled by Dow Jones and also outpaced the first quarter’s 2-percent expansion.

Consumer spending grew by 1.6 percent from the previous quarter and made up 68 percent of economic activity during the period as well as half the quarter’s overall growth. However, the expansion in spending was less than the 4.2 percent booked in the previous quarter, due in part to lower gas prices and fewer car sales.

Household spending from affluent to low-income households remained steady. “Our data did not indicate any behavior change across consumer segments,” Vasant Prabhu, Visa’s CFO, told The Wall Street Journal.

Government spending was up 2.6 percent, reflecting a boost in defense spending aimed at aiding Ukraine defend itself. Gross private domestic investment rose 5.7 percent.

Business investment jumped 7.7 percent, compared to a feeble 0.6 percent in the first quarter, due in part to federal incentives for new computer chip and electric-vehicle factories.

Orders for durable goods—those designed to last at least three years—grew by 4.7 percent, more than tripling the 1.5 percent economists had predicted.

The GDP has grown steadily since the second quarter of 2022, when it shrank by 0.6 percent.

Inflation decelerated during the quarter, which also aided growth. The Personal Expenditures Consumption Price Index, the U.S. Federal Reserve’s key gauge of price increases, added only 2.6 percent during the quarter; the rate had been 4.1 percent during this year’s first three months.

The job market has held up, with the economy adding 1.7 million nonfarm jobs so far this year. The 3.6-percent unemployment rate was the same in June as a year earlier. The number of claims for unemployment benefits in the most recent week was 221,000, about 7,000 less than the previous week and below the consensus expectation of 235,000.

The spate of good economic news has sparked hopes and expectations that inflation has been tamed without a recession and that the post-COVID expansion will roll out longer into the future than expected. (See “Consensus Builds Around “Soft Landing,” End to Fed’s Rate Hikes” in this issue.)

The 2.4-percent second-quarter GDP growth was roughly in line with the economy’s pre-COVID pace, The Wall Street Journal noted.

However, the yield curve between the two-year and ten-year treasury notes has remained inverted for several months; the anomaly almost always presages a recession within 12 months.

The yield curve between the three-month and 10-year notes also has inverted, which at the end of June was signaling a 67-percent chance of an economic contraction ahead, according to data from the Federal Reserve Bank of New York. 

The Fed also has said interest rates will remain high for some time, making it harder for many households to afford to buy a house, car, or other big-ticket item.

North American consumers “are starting to show signs of caution,” Unilever CFO Graeme Pitkethy said to the WSJ. “We still think there’s a possibility of a mild recession.”

TREND FORECAST: As we have reported, the impact of the rising interest rates takes well over a year to hit the economy, and that time will come, we forecast, in late September. Fearing an economic slowdown, The Street is now betting that the odds of the Federal Reserve raising interest rates in September is about one in five. This pause will do nothing to lower the interest rate levels of buying a home, a car, floating and adjustable rate loans… and the interest payments on government debt. Thus, the heavy debt load and high interest rates will put downward pressure on economic growth. 
Down for the 22nd consecutive month, the National Association of Realtors reported in July that existing home sales in June were down 18.9 percent year-to-year while building permits in June fell 15.3 percent and housing starts declined 8.1 percent.

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