The economy grew at a 2.1% annual rate in the second quarter of this year, near the 2.2% rate the quarter before, the Bureau of Economic Analysis reported Thursday morning in its third and final estimate of the gross domestic product.
The report shows that GDP growth, adjusted for inflation, has remained resilient even as the Federal Reserve continues to hike interest rates in response to inflation.
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Thursday’s report also included significant revisions to past data. Growth in the first quarter of this year was revised up two-tenths of a percentage point to a 2.2% rate. But growth for the entire post-pandemic expansion has been slower than previously estimated — an annual rate of 5.6%, a downward revision of 0.2 percentage points.
Consumer spending increased at a 0.8% annual rate in the second quarter, a slowdown from previous months. “The strength in consumer spending earlier this year was inflationary and not real,” said Chris Rupkey, chief economist for FWDBONDS.
After more than a year of successive interest rate hikes, some by very aggressive margins, this month the Fed decided to pause its rate hiking. While the Fed has paused, it is unclear whether the central bank will raise rates again before the year is up.
The Fed’s target range is now 5.25% to 5.50%, still the highest level in more than two decades. Higher interest rates are meant to have the effect of slowing borrowing and investment, dampening overall commerce. Many economists fear that the rate-hike cycle will end in a recession.
Typically, two back-to-back quarters of negative GDP growth are indicative of a recession. The fact that the GDP was positive in the first quarter and the second quarter is welcome news to economists, many of whom were predicting last year that the country might be in a recession by now.
While inflation has largely been in decline since June 2022, the past couple months have shown annual price growth trending up again, making the Fed more likely to hike again and a situation that is bad news for the overall economy.
While the Fed is still grappling with inflation, the labor market has remained quite resilient.
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The economy beat expectations in August and added 187,000 jobs. While the headline job growth number in the last employment report from the Bureau of Labor Statistics was more than predicted, other details showed that gains are slowing.
The job gains in June and July were revised down, and the unemployment rate unexpectedly ticked up to 3.8%, although that is still a relatively low level by historical standards.
