The U.S. economy grew much faster than expected over three months ending in June, accelerating from the previous quarter and defying concerns about a possible slowdown.
U.S. GDP grew at a 2.8% annualized rate over three months ending in September. That figure doubled the annualized rate of growth undertaken over the previous quarter.
The economic expansion reflected a surge in consumer spending, the U.S. Bureau of Economic Analysis said on Thursday. The uptick in spending included purchases of housing, and cars, among other items, the BEA added.
The fresh data delivers a strong bill of health for the nation’s economy. The robust performance defies a years-long period of high interest rates, which typically weigh on demand and slow economic activity.
However, the continued growth could complicate the path toward a widely expected interest rate cut from the Federal Reserve in September.
Until the most recent quarter, the economy had been cooling. That trend gave the Federal Reserve confidence that its high interest rates had indeed slowed output and contributed to a slowdown of price increases.
A person shops at a Whole Foods grocery store in the Manhattan borough of New York City, March 10, 2022.
Carlo Allegri/Reuters
Price increases have slowed significantly from a peak of more than 9%, though inflation remains more than a percentage point higher than the Fed’s target rate of 2%. An outright drop in prices in June compared to the month prior marked a major sign of progress in slowing inflation.
If the Fed cuts interest rates as the economy is heating up, however, the central bank risks rekindling rapid price increases.
The chances of an interest rate cut at the Fed’s meeting in September stand at more than 80%, according to the CME FedWatch Tool, a measure of market sentiment.
The US economy experienced a significant surge in growth during the second quarter of 2021, surpassing expectations and indicating a strong recovery from the impacts of the COVID-19 pandemic. According to the latest data released by the Bureau of Economic Analysis (BEA), the country’s gross domestic product (GDP) grew at an annualized rate of 6.5% in the April-June period, exceeding economists’ forecasts of around 6.3%.
This robust growth can be attributed to several factors, including increased consumer spending, a rebound in business investment, and a surge in exports. Consumer spending, which accounts for more than two-thirds of economic activity in the US, rose by 11.8% in the second quarter, driven by a combination of stimulus payments, easing COVID-19 restrictions, and pent-up demand for goods and services.
Business investment also saw a strong recovery, with spending on equipment and software increasing by 8% and nonresidential structures by 7.7%. This indicates that businesses are regaining confidence in the economic outlook and are willing to invest in expanding their operations.
Furthermore, exports surged by 6.6% in the second quarter, outpacing the growth in imports, which grew by 7.8%. This resulted in a narrowing of the trade deficit, which is a positive development for the US economy as it indicates that the country is exporting more goods and services than it is importing.
The labor market also showed signs of improvement during the second quarter, with the unemployment rate falling to 5.9% in June from a peak of 14.8% in April 2020. This decline in unemployment is a positive sign for the economy as it indicates that more people are finding jobs and returning to work.
Looking ahead, economists are optimistic about the prospects for continued economic growth in the US. The rollout of COVID-19 vaccines has helped to control the spread of the virus and allowed for a gradual reopening of businesses and activities. This, coupled with the significant fiscal stimulus provided by the government, is expected to support further economic expansion in the coming months.
However, there are still risks to the economic outlook, including the potential for new variants of the virus to emerge and disrupt economic activity, as well as supply chain disruptions and inflationary pressures. It will be important for policymakers to continue to monitor these risks and take appropriate measures to support the ongoing recovery of the US economy.
Overall, the strong growth seen in the second quarter of 2021 is a positive sign for the US economy and indicates that it is on track for a robust recovery from the impacts of the COVID-19 pandemic. With continued support from policymakers and ongoing progress in controlling the virus, the outlook for the US economy remains bright.
