The U.S. economy experienced a robust 3% annual growth rate in the second quarter of 2024, according to the latest data from the Commerce Department. This growth, which aligns with economists’ expectations, was primarily driven by strong consumer spending and business investment.
Consumer spending, which accounts for approximately two-thirds of the Gross Domestic Product (GDP), increased by 2.8% in the second quarter, up from 1.9% in the first quarter. This surge was largely due to an uptick in spending on goods. Business investment also saw a significant rise, increasing by 8.3% in the second quarter, led by nonresidential investment, particularly in equipment. However, residential investment saw a decline of 2.8%.
The report also highlighted that inflation continues to ease, with the Federal Reserve’s favored inflation gauge, the personal consumption expenditures index (PCE), rising at a 2.5% annual rate last quarter, down from 3.4% in the first quarter of the year.
Despite the Federal Reserve’s 11 interest rate hikes in 2022 and 2023 to combat inflation, the U.S. economy demonstrated remarkable resilience. Since peaking at 9.1% in mid-2022, annual inflation, as measured by the consumer price index, has dropped to 2.5%.
The U.S. economy, the world’s largest, has continued to grow, and employers have continued to hire, despite the surge in borrowing rates. However, the job market has shown signs of weakness in recent months, with employers adding an average of just 116,000 jobs a month from June through August, the lowest three-month average since mid-2020.
The Federal Reserve responded to the steady drop in inflation and growing evidence of a more sluggish job market by cutting its benchmark interest rate by an unusually large half-point last week. This rate cut, the Fed’s first in more than four years, reflects its new focus on supporting the job market now that inflation has largely been tamed.
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