The world’s largest economy breezed past economists’ expectations yet again as consumer spending picked up more than anticipated.
According to new ‘flash’ figures published on Thursday, US GDP grew at an annualised rate of 2.8 per cent between April and June. Economists had expected GDP to grow 2.0 per cent.
This was a substantial acceleration on the pace of growth during the first quarter, when the economy grew 1.4 per cent.
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Compared to the first quarter, the Bureau of Economic Analysis said the acceleration was due to “an acceleration in consumer spending” as well as an upturn in private investment. Personal spending rose 2.3 per cent in the quarter.
The data also showed that the personal consumption expenditure, a key measure of underlying inflation, rose 2.9 per cent, ahead of expectations.
The figures will be closely scrutinised by the US Federal Reserve as they consider the timing of the first interest rate cut.
The continued strength of the economy has been a key consideration for policymakers, with most rate-setters content to wait for further signs that inflation is under control while growth remains strong.
The US economy grew 2.5 per cent last year despite the impact of high interest rates and stubborn inflation. In its most recent set of forecasts, the International Monetary Fund (IMF) projected that the US economy would grow 2.6 per cent in 2024 before slowing to 1.9 per cent next year.
Jerome Powell said the Fed could “afford to take our time” before cutting rates, partly due to the economy’s health.
Analysts said the strength of the economy could be a concern for the Fed if it wanted to cut rates in the months ahead. Kyle Chapman, FX markets analyst at Ballinger Group said, the US consumer remains “relentless”.
“The July rate cut is dead and buried, but that was unlikely to be on the table anyway. The core PCE upside surprise is arguably the bigger story and, although much improved from the first quarter figure, it will take away from the Fed’s confidence somewhat,” he said.
Nevertheless, Stephen Brown, deputy chief North America economist, still thought the Fed would be able to cut rates in September.
“The recent loosening of labour market conditions and signs of slower price growth still mean that there is a strong case for a cut,” he said.
While investors will watch how the Fed reacts to the GDP data, many observers will be more interested if it has any bearing on the Presidential election campaign.
Vice-president Kamala Harris was confirmed as the Democratic nominee earlier this week after President Biden’s decision to not seek re-election. Biden has presided over a strong economy, but has also been blamed for the surge in inflation due to his massive pandemic stimulus.