Q2 GDP gain exceeds expectations, alleviating recession worries

The Bureau of Economic Analysis (BEA) has reported that the gross domestic product (GDP) for the second quarter of 2023 exceeded expectations, indicating a positive outlook for the US economy. The real GDP increased at an annual rate of 2.4% during the April-through-June period, driven by consumer spending, nonresidential fixed investment, government spending, and private inventory investment. However, decreases in exports and residential fixed investment offset some of this growth.

The resilience in consumer spending is notable considering the current inflation and rising prices that led to the Federal Reserve raising interest rates multiple times since 2022. This positive GDP growth suggests that the US economy has been able to withstand these economic challenges. The National Association of Federally-Insured Credit Unions (NAFCU) believes that the economy's ability to avoid a recession is due to the robust labor market and sustained economic activity supporting consumer spending and business investment.

While GDP growth is promising, the report also highlights a need for caution regarding inflation. The personal consumption expenditures (PCE) deflator, a measure of inflation, eased to 2.6%, indicating progress towards the Federal Reserve's 2% target. However, core inflation, which excludes volatile energy prices, remains elevated and slower to decrease. This suggests that future rate hikes may be necessary to curb inflation.

The housing market continues to face constraints due to higher prices and interest rates. Mortgage rates have remained in the 6% to 7% range since the beginning of the year, discouraging potential buyers. Additionally, homeowners with low mortgage rates are staying in their current homes, resulting in a low supply of listings. However, when homes are available, they are met with strong demand, often selling above the asking price.

Overall, the second-quarter GDP growth indicates that the US economy remains resilient despite challenges such as inflation and housing market constraints. The positive growth supports the Federal Reserve's decision to raise interest rates and suggests a healthy economy. However, caution is advised regarding inflation, and the housing market continues to face limitations.


More from Press Rundown