(CTN News) – It appears that the U.S. inflation economy grew faster than expected in the second quarter due to labor market resilience and business investment in equipment, which may have prevented a much-feared recession.
According to the Commerce Department’s advance second-quarter gross domestic product (GDP) report on Thursday, domestic demand remained strong last quarter, but inflation declined significantly.
Some economists have concluded that the Federal Reserve will not have to raise interest rates beyond this year, but rather will need to keep borrowing costs higher for a while longer. Earlier this week, the Federal Reserve raised interest rates by 25 basis points to a range of 5.25%-5.50%.
According to Christopher Rupkey, chief economist at FWDBONDS in New York, “the economy is more than resilient; solid growth in the second quarter shows it has triumphed over the naysayers who argued recession was inevitable due to inflation shock and the Fed’s aggressive rate stance to stem it.”
In the last quarter, the gross domestic product increased by 2.4% on an annualized basis. In the quarter January-March, the economy expanded by 2.0%.
Analysts polled by Reuters had forecast an increase in GDP of 1.8% in April-June.
During the second quarter of 2008, the government’s measure of inflation in the economy, the price index for gross domestic purchases, increased at a rate of 1.9%, down from the 3.8% rate recorded in the first quarter. Aside from food and energy, prices increased by 2.6% in the second quarter, compared with a 4.2% increase in the first quarter.
Despite the Fed’s 525 basis point rate hikes since March 2022, the economy has largely survived the rate hikes outside of the housing market and manufacturing sectors.
Although economists have been forecasting a downturn since late 2022, some now believe a soft-landing scenario envisaged by the Federal Reserve is feasible.
Over two-thirds of U.S. economic activity is accounted for by consumer spending, which increased at a rate of 1.6%. Although the rate of growth slowed from the robust 4.2% rate in the first quarter, it contributed more than one percentage point to GDP growth. Despite the slowdown in spending on long-lasting manufactured goods following the COVID-19 pandemic, spending on services is increasing.
Excess savings from the pandemic, estimated at $2.1 trillion at one point, and debt are driving spending up. Companies are hoarding workers after struggling to find workers during the pandemic, which has resulted in strong wage gains.
It is evident from the persistently Inflation low levels of layoffs.
The Labor Department said Thursday that initial unemployment claims fell 7,000 to 221,000 seasonally adjusted for the week ended July 22. According to Inflation economists, 235,000 claims were expected.