The US economy grew faster than expected in the second quarter amid solid gains in consumer spending and business investment, but inflation pressures subsided, leaving intact expectations of a September interest rate cut from the Federal Reserve.
Growth last quarter also received a boost from inventory building as well as increased government spending, the Commerce Department's advance report on second-quarter gross domestic product on Thursday showed. The housing market recovery, however, regressed and was a small drag on the economy. The trade deficit widened further, subtracting from GDP growth.
The economy continues to outperform its global peers, despite hefty rate hikes from the US central bank in 2022 and 2023, thanks to a resilient labor market.
"Economic growth is solid, not too hot and not too cold," said Christopher Rupkey, chief economist at FWDBONDS. "Inflation looks to be going the Fed's way and an easing of monetary restraint with an interest rate cut is likely in September."
Gross domestic product increased at a 2.8% annualized rate last quarter, the Commerce Department's Bureau of Economic Analysis said in its advance estimate of second-quarter GDP. Economists polled by Reuters had forecast GDP rising at a 2.0% rate. Estimates ranged from a 1.1% rate to a 3.4% pace. The economy grew at a 1.4% rate in the first quarter.
US central bank officials regard a 1.8% pace as the non-inflationary growth rate. Still, growth was slower than the 4.2% pace logged in the second half of last year.
Consumer spending, which accounts for more than two-thirds of the economy, increased at around a 2.3% rate after slowing to a 1.5% pace in the January-March quarter. Spending was driven by increased outlays on services like healthcare, housing and utilities as well as recreation.
Consumers also boosted outlays on goods, including motor vehicles and parts, recreational goods and vehicles, furnishings and durable household equipment as well as energy products.
Business investment picked up as spending on equipment surged at an 11.6% rate after rising at only a 1.6% pace in the first quarter. Businesses also accumulated more inventory, which increased at a $71.3 billion rate after rising at a $28.6 billion pace in the prior quarter.
