The US economy showed remarkable resilience in the second quarter, growing at a robust 2.8% annualized pace, exceeding expectations. Consumer spending, government outlays, and a significant inventory build drove the expansion, according to the Commerce Department’s initial estimate.
Consumer spending, a key driver of growth, rose 2.3%, with both services and goods seeing solid increases. Inventory growth also contributed significantly, adding 0.82 percentage points to the total gain. Government spending, particularly defense outlays, added to the growth momentum.
While imports jumped 6.9%, the biggest quarterly rise since Q1 2022, exports grew at a slower pace of 2%. Despite this, the overall growth picture was encouraging, with a better mix of contributors than in recent quarters.
The report also brought some welcome news on inflation, with the personal consumption expenditures price index increasing 2.6% for the quarter, down from 3.4% in Q1. Core PCE prices, a key indicator for the Federal Reserve, rose 2.9%, compared to 3.7% in the prior period.
Treasury Secretary Janet Yellen hailed the report as affirming the path to steady growth and declining inflation. However, some signs of cracks in the consumer picture have emerged, including rising credit card delinquencies and declining personal savings rates.
The Federal Reserve is expected to hold interest rates steady next week, but market pricing suggests a possible rate cut in September. Policymakers have been cautious about when they might start reducing rates, but recent comments indicate a growing willingness to ease policy.
