The U.S. economy grew by 3% in the last quarter, helped mainly by strong consumer spending and more business investment, says a new government report. This is a big improvement compared to the first quarter of 2024, which only grew by 1.4%.
Originally, the Commerce Department predicted a 2.8% growth in the gross domestic product (GDP) for April to June. Consumer spending, which makes up about 70% of the economy, grew by 2.9%, beating the first estimate of 2.3%. Business investments also went up by 7.5%, especially in equipment, which saw a 10.8% increase.
Even with worries about high interest rates, the economy is showing strength. However, people are still concerned about economic issues, especially with the presidential election coming in November. Many Americans are frustrated with high prices, though inflation has eased since its peak in mid-2022. Surveys suggest that consumer confidence is growing.
The new GDP report also shows that inflation is slowly going down but is still a little above the Federal Reserve's target of 2%. The personal consumption expenditures (PCE) index, which the Fed uses to measure inflation, went up by 2.5% last quarter, down from 3.4% in the first quarter. Core PCE inflation, which leaves out food and energy prices, increased by 2.7%, down from 3.2% earlier in the year.
To fight inflation, the Federal Reserve raised interest rates 11 times in 2022 and 2023, reaching the highest level in 23 years. This helped bring inflation down from 9.1% to 2.9% last month. Despite fears of a recession due to higher borrowing costs, the economy has kept growing, and jobs have remained stable.
With inflation now closer to the Fed's target, the central bank is expected to lower interest rates at its next meeting in mid-September. The goal is to lower inflation while keeping the job market strong and avoiding a recession. Lower interest rates could make loans and mortgages cheaper.
The Federal Reserve is also starting to focus more on supporting the job market, which is getting weaker. Unemployment has risen to 4.3%, and hiring has slowed, but both are still relatively strong.
This report is the Commerce Department's second estimate for the April-June quarter. The final estimate will come next month.
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