US economy grows at resilient 2.8% pace in Q2, faster than expected
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The news: US economic growth surged more than expected in the second quarter, with GDP increasing at a 2.8% annualised rate, twice the 1.4% rate in the first quarter, according to the Bureau of Economic Analysis.
The numbers: Personal spending, the main driver of growth, rose 2.3%, exceeding projections. Overall growth remained slower compared to last year as high interest rates dampened consumer spending and broader economic activity. Underlying inflation eased to 2.9%, still above estimates.
Business investment saw its fastest growth in nearly a year, while government spending, particularly on defence, also boosted GDP. Residential investment, however, declined due to high mortgage rates.
The context: The data is good news for Fed rate cuts, possibly starting in September, as it shows a cooling but resilient US economy amid higher borrowing costs.
The economy is expected to slowdown in the latter half of the year as the labour market weakens and income growth decelerates. Recent earnings reports from Nestle, Pepsi, Nike and several airlines suggest Americans are beginning to cut back and are increasingly financially strained.
What they said: “This is a perfect report for the Fed, growth during the first half of the year is not too hot, inflation continues to cool and the elusive soft landing scenario looks within reach,” Fitch Ratings' head of economic research Olu Sonola said in a note.
The sources: US Bureau of Economic Analysis, Bloomberg
