Second Quarter US GDP Indicates a Healthy but Slowing Economy

The second quarter US GDP numbers are in, and they're showing a healthy but slowing economy. The growth rate of 2.1% is a decent pace, but it's a slowdown from the 3.1% growth rate in the first quarter.

This slowdown is likely due to a decrease in government spending, which is down 1.3% from the previous quarter. The decline in government spending is a significant factor in the slowing economy.

Consumer spending, on the other hand, remains strong, growing at a rate of 4.3% in the second quarter. This is a sign that American consumers are still confident in the economy and willing to spend.

Business investment also increased in the second quarter, growing at a rate of 2.7%. This is a positive sign for the economy, as it indicates that businesses are still investing in their operations and hiring new employees.

Consumer spending increased a solid 2.3% annualized in the second quarter, above the 1.5% pace early this year but just below the more than 3% clip in the second half of 2023.

Consumption makes up about 70% of economic activity, making it a crucial driver of the US economy.

Americans are saving about 3.8% of their monthly income, well below the average 7% or so they socked away before the pandemic.

Credit card debt is near a record high and delinquencies are historically elevated, leaving low and middle-income households with little cushion.

The economy is forecast to grow less than 2% annualized in the second half of the year, according to a survey by Wolters Kluwer Blue Chip Economic Indicators.

Consumer spending is expected to be at 1.8% in the second half of the year, significantly lower than in last year's second half.

Households with higher debt burdens and weaker savings buffers have been more selective and a bit more price-sensitive in their spending.

Business investments are expected to be "on the soft side" due to lower demand and higher borrowing costs.

The labor market has also seen softening, with unemployment rates rising slightly in recent months.

Inflation slowed to a 2.6% annualized rate in the second quarter, down from 3.4% in the first quarter.

The GDP report for the second quarter is in, and it's showing a growth rate of 2.8% at an annualized rate, up from 1.4% in the first quarter. This is a significant increase, beating the median forecast of 2.1% growth.

Consumer spending is driving this growth, with a 2.3% rate of increase, up from 1.5% in the first quarter. This is a crucial factor, as consumption makes up about 70% of economic activity.

The economy is still chugging along despite the Federal Reserve's interest rate hikes, which were meant to slow it down and tame inflation. However, economists don't expect this relatively fast growth to last, and still think the Fed will cut interest rates in September as the economy and inflation both slow down.

A look at the forecast for the second half of the year shows that the economy is expected to grow less than 2% annualized. This is a more subdued pace, reflecting the impact of consumers tightening their purse strings and businesses becoming more reticent to invest and hire.

Here's a breakdown of the GDP report's key takeaways:

Trade was a drag on growth as imports far outpaced exports. Imports leaped 6.9% as Americans continued to snap up foreign-made products.

A strong dollar made U.S. shipments more expensive for overseas buyers, which contributed to the decline in exports.

Exports rose just 2% due to economic weakness overseas. The bigger trade gap slowed GDP growth.

The second quarter US GDP report is out, and it's got some interesting numbers. The GDP report release date and time is Thursday, July 25 at 8:30 a.m. EDT.

The forecast is for a 1.9% rise in GDP for the second quarter, which is a slight improvement from the 1.4% growth in the first quarter, according to FactSet.

The Federal Reserve is closely monitoring the economy, and the preliminary GDP report has significant implications for monetary policy. The Fed is on the verge of lowering the fed funds rate, which influences borrowing costs on all kinds of loans.

Financial market participants are betting that the Fed will start cutting rates in September, with a 100% chance predicted by the CME Group's FedWatch tool. This is based on fed funds futures trading data, where traders are pricing in a nearly certain rate cut.

The softening labor market has strengthened the case for a September rate cut, according to Boussour. She expects a second cut in December, citing a balanced labor market and inflation moving in the right direction.

The odds of a September rate cut are nearly 92% according to the CME FedWatch tool, which is based on bond traders' predictions. This suggests a high likelihood of a rate cut in September.

The Fed wants to avoid an abrupt deterioration in the economy, and a preemptive modest loosening in policy is seen as necessary to prevent this. This is according to Caldwell, who notes that the economy has been resilient to high interest rates but may not be able to maintain this resiliency indefinitely.