GDP GROWTH: TRENDING IN Q2 2024

The U.S. economy picked up steam in the second quarter, as the nation’s gross domestic product
increased at a 2.8% annual rate compared to 1.4% in the first quarter, the Commerce Department said.
The size of the GDP reading was more than expected and primarily reflected heightened consumer
spending, business investment and inventory growth.
Consumer spending, which accounts for more than two-thirds of the economy, increased at about
2% after slowing to a 1.5% pace in the first quarter. Much of the increased spending was in June.
The increased spending reflected growth in services led by health care, housing and utilities and
recreation. Leading the spending gains on goods were sales of motor vehicles and parts, recreational
products and vehicles, furnishings and durable household equipment, gasoline and other energy
goods. Greater inventory investment was led by wholesale and retail trade, but those gains were
partly offset by declines in mining, utilities and construction industries.
The growth in business investment reflected increases in equipment and intellectual property
products that were partly offset by a decrease in structures. Investment in equipment rose at its fastest
pace in more than two years. The quarterly GDP reading was well above the 2% growth expected by
economists surveyed by Bloomberg.

EMPLOYMENT

Employers continued to deliver strong hiring reports as labor department data through June showed a
42nd consecutive month of job growth. But in addition to the 206,000 jobs added to the economy in
June, the labor department announced revisions that reduced positions for April and May by 111,000. That
brought down the three-month average to 177,000, the slowest pace since January 2021.
The overall unemployment rate ticked up to 4.1% in June, its highest level since November 2021, as about
277,000 people joined the labor force. There also was a rise in the unemployment rate for prime age workers,
which account for two thirds of the labor force. There was an increase in the labor force participation rate to
62.6% that was driven by 83.7% participation among prime age workers, the highest since February 2022.
Wage growth, which was the slowest in three years, and other wage indicators recently has been moving
in the direction sought by the Federal Reserve and other policymakers aiming to reduce inflation. June’s
average hourly earnings data, an important measure for inflation, rose 0.3% from May. Year-over-year
average hourly earnings slowed to 3.9% in June, down from 4.1% in May.
When added to May’s moderating prices, the new report could boost the Fed’s confidence in the inflation
outlook after the disinflationary trend was disrupted in the first quarter.

 

MONETARY POLICY

The overnight federal funds rate was left unchanged in the second quarter, and Federal Reserve
officials signaled that at least one interest rate cut remains on the table for 2024 instead of three rate
reductions the central bank had been planning early this year.
Those plans for borrowers’ relief were scuttled when increased price pressures in the first quarter
forced Fed officials to scrap any idea of a rate cut this summer. By the second quarter, however, those
price pressures had abated, and disinflation had resumed. The consumer price index showed in May
that the 12-month change measure of total CPI inflation had fallen to 3.3%, which Fed Chair Jerome
Powell called “encouraging.”
In the committee’s minutes for its June meeting, the first area addressed was the condition of financial
markets. It was noted that financial conditions eased modestly over the intermeeting period. This
was mainly because of higher equity prices, which appeared to respond to the reductions in the
perceived odds of a recession, and a consensus among market participants that the federal funds rate
has reached its peak.

 

GLOBAL ECONOMY

Global growth was expected to remain stable, rising to 3.2% in 2024 and 3.3% in 2025, according to a
second-quarter forecast by the International Monetary Fund. Although the outlook for expansion was
broadly unchanged from the first quarter, offsetting growth revisions have shifted the composition,
the IMF said.
In its World Economic Outlook Update the IMF said that among advanced economies growth is
expected to slow over the coming quarters. In the United States projected growth was revised to
2.6%, down 0.1% from Q1. Growth is expected to slow to 1.9% in 2025 as the labor market cools and
consumption moderates with fiscal policy starting to tighten gradually. By the end of 2025, growth is
projected to taper to potential, closing the positive output gap.
In the euro area, the IMF said that activity appears to have bottomed out. A modest pickup of 0.9% is
expected for 2024, driven by stronger momentum in services and higher-than-expected net exports
in the first half of the year. Growth is projected to rise to 1.5% in 2025. This is supported by stronger
consumption on the back of rising real wages, as well as higher investment from easing financing
conditions amid gradual monetary policy loosening this year. But there was continued weaknesses in
manufacturing, suggesting a more sluggish recovery for some nations such as Germany.