Despite fears of a slowdown amid rising interest rates, economic growth accelerated to an annual rate of 2.4% in the second quarter of 2023, the Bureau of Economic Analysis reported Thursday.
The first estimate for the April to June period was stronger than expected, registering an increase from the 2% growth rate in the first three months of the year.
Although the rate of growth of household consumption dropped from the previous quarter, it still increased by 1.6%, with much of the growth coming in services, including travel and entertainment. Business investment was strong, as well, growing at an annual rate of 7.7%, buoyed by federal incentives for computer chip and electric vehicle manufacturing.
It was a “near Goldilocks report on GDP,” said Diane Swonk, chief economist at KPMG. “I don’t think I have used that term since the 1990s. We don’t live in [a] fairy tale and there are no guarantees it will last but for the moment, it is worth celebrating.”
Joseph Brusuelas, chief economist at RSM, said the economy continues to defy expectations. “If you’re looking for a working definition of ‘resilient,’ look no further than the American economy,” he told The New York Times. “This is absolutely rock-solid.”
Bidenomics in action? The White House celebrated the report, and gladly took credit for the results. “The economy’s continued growth builds on what was already the strongest pandemic recovery and lowest inflation of any G-7 country,” President Joe Biden said in a statement. “This progress wasn’t inevitable or accidental—it is Bidenomics in action, growing the economy from the middle out and bottom up, not the top down.”
Still, although the economy continues to outperform expectations, some analysts are predicting a slowdown later in the year, driven by a drop in consumption as pandemic-era savings finally run out. “All those tailwinds and buffers that were supporting consumption are not as strong anymore,” Blerina Uruci, chief U.S. economist at T. Rowe Price, told the Times. “It feels to me like this hard landing has been delayed rather than canceled.”
Even if the economy manages to avoid a recession, as a growing number of analysts now think it could, its continued strength could present a problem for the Federal Reserve as the central bank seeks to bring inflation under control. Bloomberg Economics economist Anna Wong said the latest GDP report “reflects an economic force working against the Fed’s efforts to reduce inflation — expansionary fiscal policy.” The result could be more restrictive Fed policy, with more interest rate increases ahead. And that could cause the recession that the economy has managed to avoid so far.
