(Washington) The U.S. economy grew at a healthy 3 percent annual pace last quarter, fueled by strong consumer spending and business investment, the government said Thursday in an update to its initial assessment.
The Commerce Department had previously estimated that the country’s gross domestic product — the total output of goods and services — grew at a rate of 2.8% from April to June.
Second-quarter growth marked a sharp acceleration from a slow growth rate of 1.4% in the first three months of 2024.
Consumer spending, which accounts for about 70% of U.S. economic activity, grew at a 2.9% annual rate last quarter, up from the government’s initial estimate of 2.3%. Business investment rose at a 7.5% rate, led by a 10.8% increase in equipment investment.
Thursday’s report reflects an economy that remains resilient despite pressure from still-high interest rates. The state of the economy weighs heavily on voters ahead of the November presidential election. Many Americans remain frustrated by high prices, even though inflation has fallen since hitting a four-decade high in mid-2022.
But measures of consumer sentiment by the Conference Board and the University of Michigan have shown a recent improvement in confidence in the economy.
“GDP revisions show the U.S. economy was in good shape by mid-2024,” said Bill Adams, chief economist at Comerica Bank. “Solid growth in consumer spending propelled the economy forward in the second quarter, and the increase in consumer confidence in July suggests it will also propel growth in the second half of the year.”
The latest GDP estimate for the April-June quarter included figures showing that inflation continues to ease while remaining just above the Federal Reserve’s 2% target. The central bank’s preferred inflation gauge — the personal consumption expenditures index, or PCE — rose at an annual rate of 2.5% last quarter, down from 3.4% in the first quarter of the year. And excluding volatile food and energy prices, so-called core PCE inflation ran at a pace of 2.7%, down from 3.2% in the January-March period.
The two PCE inflation figures released Thursday marked a slight improvement from the government’s initial estimate.
To combat soaring prices, the Fed raised its benchmark interest rate 11 times in 2022 and 2023, bringing it to a 23-year high and helping to reduce annual inflation from a peak of 9.1% to 2.9% last month. The resulting much higher borrowing costs for consumers and businesses were widely expected to trigger a recession. Yet the economy has continued to grow and employers have continued to hire.
Now, with inflation barely above the Fed’s 2% target level and expected to slow further, Chairman Jerome Powell has essentially declared victory over inflation. As a result, the Fed is poised to begin cutting its benchmark interest rate at its next meeting in mid-September.