US economic growth revised up to solid 3% annual rate

The United States economy grew last quarter at a healthy three per cent annual pace, fuelled by strong consumer spending and business investment, the government said Thursday in an upgrade of its initial assessment.

The US Commerce Department had previously estimated that the nation’s gross domestic product — the total output of goods and services — expanded at a 2.8 per cent rate from April through June.

The second-quarter growth marked a sharp acceleration from a sluggish 1.4 per cent growth rate in the first three months of 2024.

Consumer spending, which accounts for about 70 per cent of U.S. economic activity, rose at a 2.9 per cent annual rate last quarter. That was up from 2.3 per cent in the government’s initial estimate. Business investment expanded at a 7.5 per cent rate, led by a 10.8 per cent jump in investment in equipment.

Thursday’s report reflected an economy that remains resilient despite the pressure of continued high interest rates. The state of the economy is weighing heavily on voters ahead of the November presidential election. Many Americans remain exasperated by high prices even though inflation has plummeted since peaking at a four-decade high in mid-2022.

But measures of consumers’ spirits by the Conference Board and the University of Michigan have shown a recent uptick in confidence in the economy.

“The GDP revisions show the U.S. economy was in good shape in mid-2024,’’ said Bill Adams, chief economist at Comerica Bank. “Solid growth of consumer spending propelled the economy forward in the second quarter, and the increase of consumer confidence in July suggests it will propel growth in the second half of the year as well.’’

The latest GDP estimate for the April-June quarter included figures that showed that inflation continues to ease while remaining just above the Federal Reserve’s 2.0 per cent target. The central bank’s favoured inflation gauge — the personal consumption expenditures index, or PCE — rose at a 2.5 per cent annual rate last quarter, down from 3.4 per cent in the first quarter of the year. And excluding volatile food and energy prices, so-called core PCE inflation grew at a 2.7 per cent pace, down from 3.2 per cent from January through March.

Both the PCE inflation numbers issued Thursday marked a slight improvement on the government’s first estimate.

A GDP category that measures the economy’s underlying strength rose at a healthy 2.9 per cent annual rate, up from 2.6 per cent in the first quarter. This category includes consumer spending and private investment but excludes volatile items such as exports, inventories and government spending.

To fight spiking prices, the Fed raised its benchmark interest rate 11 times in 2022 and 2023, lifting it to a 23-year high and helping shrink annual inflation from a peak of 9.1 per cent to 2.9 per cent as of last month. The much higher borrowing costs for consumers and businesses that resulted had been widely expected to cause a recession. Yet the economy has kept growing and employers have kept hiring.

Thursday’s report was the Commerce Department’s second estimate of GDP growth in the April-June quarter. It will issue its final estimate late next month.

– AP