US Economic Growth Exceeds Expectations, Quelling Recession Fears

us-economic-growth-exceeds-expectations-quelling-recession-fears

In the three months ending in June, U.S. economic growth accelerated, exceeding economists’ expectations and calming fears of a potential recession. During the first half of 2023, the U.S. gross domestic product grew at an annualized rate of 2.4%, according to data released by the government on Thursday. The results represent an improvement over the 2% annualized GDP growth documented in the preceding quarter. This growth was slower than the 2.6% growth seen in the preceding quarter.

The finding of 2.4% annualized growth for the three months ending in June indicates that economic growth has accelerated during that period, dispelling fears of an imminent recession. According to the Bureau of Economic Analysis, the federal agency that publishes GDP data, the increased growth is a result of a rise in consumer and government expenditure, as well as an increase in business investment in inventory.

The decline in exports and domestic investment reduced GDP growth, according to the agency.

The data revealed that personal income grew at a weaker rate than it had in the previous quarter. Personal income is an aggregate measure of a variety of incomes, such as wages and rent. However, the personal saving rate increased slightly from the previous quarter. Fears of a recession have cast a dark cloud over the economy for many months, but falling inflation and a robust employment market have forecasters optimistic about the United States avoiding a recession.

According to many economists, a recession consists of two consecutive quarters of declining gross domestic product (GDP). The GDP data was disclosed on Thursday, one day after the Federal Reserve raised interest rates by 0.25 percentage points, bringing the benchmark rate to a 22-year high between 5.25 and 5.50 percent.

However, economists surveyed by Bloomberg believe that this is the final rate hike in an aggressive series that began in March of 2022.

The Federal Reserve has been attempting to reduce inflation for more than a year by increasing interest rates, which typically stall the economy and reduce consumer demand. However, the approach risks triggering an economic downturn.

The policy appears to have been effective at reducing prices. Inflation has declined considerably since its peak in the summer of last year, but it remains one percentage point above the Federal Reserve’s 2% goal.

In the meantime, crucial economic indicators have maintained robust performance. A report released earlier this month revealed that the labor market slowed in June, but still added 209,000 jobs at a respectable rate. Fed Chair Jerome Powell stated at a European Central Bank-sponsored conference in Sentra, Portugal, at the end of last month, the U.S. economy has actually been quite resilient.

Nearly three-quarters of forecasters surveyed by the National Association for Business Economics believe that the likelihood of a U.S. recession in the next 12 months is less than 50%, the organization announced on Monday. Tuesday, the International Monetary Fund released updated forecasts indicating an improvement in the global and American economies. The organization said it expects the U.S. economy to grow 1.8% this year, an upward revision from its April forecast.

“The global economy continues to recover gradually from the pandemic and Russia’s invasion of Ukraine, but it is not yet out of the woods,” IMF chief economist and research department director Pierre-Olivier Gourinchas stated at a press conference on Tuesday.

Commerce Department’s Latest Estimate

Photo by:  U.S. Department of Commerce via AP Reports

The estimate released by the Commerce Department on Thursday indicated that the economy’s total output of goods and services accelerated from the 2% growth rate in the January-March quarter. Economists had predicted a growth rate of 1.5% annually for the previous quarter, but the actual rate of expansion was significantly higher.

Last quarter’s expansion was fueled by a surge in business investment. Excluding housing, business expenditure increased at an annual rate of 7.7%, the highest rate since the beginning of 2022. More capital was invested in factories and machinery. Increased spending by state and local governments also contributed to the expansion of the economy during the April-June period.

Nonetheless, they have not yet pushed the United States into a widely anticipated recession. Growing optimism exists that there won’t be a recession after all, and that the Federal Reserve can orchestrate a so-called “soft-landing” — slowing the economy sufficiently to bring inflation down to its 2% target.  

This week, the International Monetary Fund increased its economic growth forecast for the United States to 1.8% for all of 2023. This would be a decrease from the 2.1% growth forecasted for 2022, but an increase from the 1.6% growth predicted by the IMF in April for 2023.

Wednesday, at a news conference following the Fed’s announcement of its latest quarter-point rate rise, Fed Chair Jerome Powell disclosed that the central bank’s staff economists no longer anticipate a U.S. recession. The minutes of the Fed’s March meeting disclosed in April that the Fed’s staff economists anticipated a “mild” recession later in the year.

Higher pay and job security give Americans the confidence and resources to continue purchasing. In fact, consumer spending, which powers approximately 70% of economic activity, grew at the fastest quarterly rate in nearly two years, 4.2% annually, from January to March. Americans have continued to spend, filling aircraft, traveling abroad, and attending concerts and movies in large numbers. However, the GDP report released on Thursday contained some encouraging news for the Fed’s inflation advocates. The personal consumption expenditures index rose at a 2.6% annual rate in the most recent quarter, down from 4.1% in the previous quarter and to the lowest level since the end of 2020.

Although this is still above the Fed’s inflation objective of 2%, it is “another welcome sign of disinflation,” according to Mortgage Bankers Association chief economist Mike Fratantoni.

There is still a chance that the burden of ever-increasing interest rates will eventually slow borrowing for homes, automobiles, renovations, business expansions, and other costly expenses to the point that a recession results.

Source: AP News, 6abc News, ABC News

Leave a Reply

Your email address will not be published. Required fields are marked *