The US economy experienced significant growth in the second quarter of 2024, expanding at an annualised rate of 3.8 percent, the fastest pace in nearly two years. This upward revision, reported by the Bureau of Economic Analysis (BEA), reflects stronger-than-expected consumer spending, which has become a crucial driver of economic recovery. This growth rate surpasses the previously estimated 3.3 percent and follows a contraction in the first quarter.
The BEA’s latest report indicates a broader economic recovery post-pandemic, with real GDP growth averaging 2.4 percent annually from 2019 to 2024. The revised figures illustrate how the economy has rebounded from the initial pandemic shock, transitioning into a period of steadier growth despite ongoing inflation challenges.
Resilience Amid Consumer Spending
The increase in GDP is attributed to a resurgence in consumer spending, which rose at a 2.5 percent annualised pace. This uptick was bolstered by greater expenditures on transportation and financial services. Additionally, business investment saw a significant rise of 7.3 percent, driven by unprecedented spending on intellectual property products, marking the highest levels since 1999. Investment in data centres specifically surged to over $40 billion annually, reflecting the growing demand for infrastructure supporting artificial intelligence and other technologies.
According to Chris Low, chief economist at FHN Financial, the latest figures affirm that the economy is recovering from the shock of tariff implementations. “Accelerating growth should mean stronger job growth within the next few months,” he noted.
Despite the positive outlook for the second quarter, some economists express caution regarding the fourth quarter. The Federal Reserve Bank of Atlanta had projected a 3.3 percent growth rate for the July-September period, yet concerns about weaker employment levels could dampen consumer spending prospects moving forward.
Inflation and Future Projections
The latest data also revealed that inflation remains a concern. The Federal Reserve’s preferred inflation measure, the personal consumption expenditures price index (excluding food and energy), saw an increase to 2.6 percent in the second quarter. Economists anticipate a rise of nearly 3 percent in August compared to the previous year.
The BEA’s annual revisions highlight that swings in trade and inventory have distorted overall GDP figures, prompting economists to focus on final sales to private domestic purchasers as a clearer indicator of consumer demand. This narrower measure was revised upwards to 2.9 percent.
In terms of employment, initial applications for unemployment benefits fell to their lowest level since mid-July, indicating a potential stabilization in the job market. Bill Adams, chief economist at Comerica Bank, stated, “The latest GDP and jobless claims data should ease the bout of anxiety kicked off by the weak August jobs report.”
While the growth figures are encouraging, they do not guarantee immediate action from the Federal Reserve regarding interest rates. Several officials remain cautious due to persistent inflationary pressures.
As the economic landscape evolves, forecasters predict modest growth in the coming years, with expectations of sub-2 percent growth driven by ongoing fiscal policies and lower interest rates. The ability of the US economy to navigate these challenges will be crucial as it seeks to maintain resilience in a complex global environment.
