The American economy, which seemed to show signs of running out of steam in the first quarter after more than two years of better-than-expected performance, has seen an unexpected surge in recent months, to the great satisfaction of President Joe Biden and the Democratic camp a few months before the presidential election.
Driven by consumption and investment, the growth of the gross domestic product (GDP) of the United States accelerated again between April and June, reaching 2.8% at an annualized rate, against 1.4% in the first quarter, according to the first estimate from the Commerce Department, published Thursday.
A surprise for analysts who were anticipating an acceleration but more modest, at 1.9%, according to the consensus published by briefing.com.
Compared to the previous quarter, growth reached 0.7%, compared to 0.4% in the first quarter compared to the last of 2023. These data are adjusted for inflation, that is, the calculation excludes the effects of rising prices.
The Commerce Department attributes the acceleration in growth to “an increase in consumer spending, both on goods and services” and “an increase in private investment in inventories.”
“The slowdown in the first three months of the year has proven to be temporary and the reacceleration of growth should reduce concerns about the strength of the expansion” currently being experienced by the US economy, said in a commentary the chief economist of Oxford Economics, Ryan Sweet.
The main contributing sectors include retail and wholesale trade, as well as health, housing and the sale of motor vehicles and durable capital goods.
Positive for Harris, not for the Fed
President Joe Biden quickly congratulated himself in a press release on Thursday on these good figures which confirm, according to him, that “we have the most powerful economy in the world” after having taken the helm of the country “in the middle of the worst economic crisis since the Great Depression” of 1929.
This data is good news for Joe Biden, but even more so for his vice-president, Kamala Harris, now the Democratic candidate in the November 5 presidential election and who wants to make the good performance of the economy one of her major arguments.
However, they could worry investors who are hoping to see signs of a slowdown multiply and the prospect that the Federal Reserve (Fed) will begin to lower its rates at its September meeting, the last before the presidential election.
This acceleration could nevertheless prove temporary: durable goods orders in June fell sharply (-6.6%, the highest in a year) after two months of near stagnation, and the jobs market continues to show signs of easing, which could end up having an impact on consumption.
“We expect consumption to slow in the second half of the year, driven by real wages that will grow much slower than last year. Rising unemployment and weaker wage growth will encourage people to save more and limit their ability to spend,” Pantheon Macroeconomics chief economist Ian Shepherdson said in a note.
The Commerce Department is due to release the PCE index, the one the Fed uses to determine monetary policy, on Friday.
While inflation slowed sharply during 2023, it stabilized at a level above the Fed’s long-term objective of 2%, prompting the latter to temporize while the markets had started the year hoping for three rate cuts in 2024.
The US central bank is now expected to limit itself to a single rate cut, which should therefore not occur at the next meeting of its monetary policy committee (FOMC), which will take place on July 30 and 31.
“For the Fed, these data support the idea of a cautious approach, although with inflation slowly slowing, we still think a rate cut remains the most likely scenario,” HFE chief economist Rubeela Farooqi said in a note.
Markets are still pricing in the first rate cut at the Sept. 17-18 meeting, according to CME Group’s FedWatch tracker, but investors are also hoping the final quarter will see two more cuts.