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Economy grew solid 2.4% in second quarter amid easing recession fears
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Date:2025-04-12 22:53:55
Can anything slow the U.S. economy?
Despite high interest rates and inflation, the economy grew solidly in the second quarter as a slowdown in consumer spending was offset by a rise in business investment.
The nation’s gross domestic product, the value of all goods and services produced in the U.S., expanded at a seasonally adjusted annual rate of 2.4% in the April-June quarter, the Commerce Department said Thursday. That’s up from 2% growth early in the year and above the 1.8% rise predicted by economists in a Bloomberg survey.
"The latest numbers put an exclamation mark on it: we’re not in a recession and it’s unlikely we’ll slip into one this year or maybe even next year," Robert Frick, an economist at Navy Federal Credit Union, wrote in a note to clients.
Has consumer spending decreased?
Consumer spending, which makes up about 70% of economic activity, grew a modest 1.6% following a 4.2% advance earlier in the year.
The buoyant American consumer has helped the economy defy recession forecasts for nearly a year. Households have relied on $2.6 trillion in pandemic-related savings to cushion blows from the Federal Reserve’s sharp interest rate hikes and easing, but still elevated, inflation. The Fed raised its key interest rate again Wednesday to a 22-year high of about 5.4%.
But those cash reserves have dwindled to several hundred billion dollars by some estimates. Meanwhile, student loan payments suspended during the health crisis are set to resume in September. And stricter bank lending standards are likely to become a bigger constraint on outlays in coming months, says Gregory Daco, chief economist of EY Parthenon.
Will there be a recession in 2023 or 2024?
Many economists still believe a recession is likely later this year or in 2024.
At the same time, wage growth has started outpacing inflation, reversing the prior trend and giving households more purchasing power. And while job growth is slowing it’s still sturdy, averaging 244,000 a month last quarter.
Those developments – along with a nascent housing recovery and a boom in infrastructure spending following a sweeping 2021 U.S. law – have a growing number of economists believing Fed rate hikes could tame inflation without sparking a downturn. Such a feat is known as a "soft landing."
How other parts of the economy performed last quarter:
Business investment rebounds
Business investment increased 7.7% after edging up just 0.6% the prior quarter.
Outlays for computers, delivery trucks, factory machines, and other equipment surged 10.8% despite recession concerns and rising interest rates, which increase borrowing costs.
Spending on buildings, oil rigs and other structures rose 9.7%.
Business stockpiling a slight positive
Businesses modestly replenished inventories, adding 0.14 percentage point to growth. Early this year, companies drew down their stocks, posing a big drag on growth.
Such stockpiling has been volatile and doesn't typically reflect the economy's underlying health. Companies heavily stocked up in 2021 in response to supply chain snarls and product shortages, leading to big swings in recent months.
Government spending increases
Government outlays rose for the fourth straight quarter, climbing 2.6% following a 5% advance in the previous quarter. Federal spending increased by 0.9% and state and local purchases rose by 3.6% amid a wave of infrastructure projects spurred by the federal law.
Housing dings economy but pain lessens
Housing construction and renovation fell for the ninth straight quarter but the pullback continued to moderate. Residential investment dropped 4.2% following a 4% fall in the prior quarter. Previously, double-digit declines averaged 23% for three straight quarters.
Aggressive Federal Reserve interest rate hikes have pushed up mortgage rates sharply, constraining home sales and building. Economists say the worst of the housing downturn is likely over and the sector is starting to recover.
Low unemployment and recession?What is a full employment recession? Are we heading into one?
Trade pulls down growth slightly
Trade dragged down growth modestly as both exports and imports fell substantially. Trade had supported the economy the previous four quarters as exports outpaced imports and the trade deficit narrowed.
Last quarter, exports plunged 10.8% as overseas demand for U.S. industrial goods softened.
Imports declined 7.8% as Americans reined in their purchases.
veryGood! (582)
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