American second-quarter GDP growth was downgraded.

 

Although second quarter U.S. economic growth was downgraded to a still-stable rate, third quarter momentum seems to be picking up as a tight labor market supports consumer spending.

According to the government's second estimate of GDP for the months of April and June released on Wednesday, the economy grew at an annualized pace of 2.1% last quarter. From the 2.4% pace that was published last month, that was lowered down.

GDP for the second quarter was not expected to be revised, according to economists surveyed by Reuters. In addition to company expenditures on equipment and intellectual property items, the change indicated downgrades to inventory investment.

Although the Federal Reserve has increased interest rates by 525 basis points since March 2022, the economy nevertheless expanded at a 2.0% annual rate in the first quarter.

It is growing far faster than the 1.8% non-inflationary growth rate that Fed policymakers consider to be the norm.

The robustness of the economy increases the likelihood that borrowing costs will stay higher for some time, but sluggish inflation is boosting confidence that the U.S. central bank is likely done raising rates and could implement a "soft landing." The majority of economists have revised their predictions for a recession this year.

Employers are mostly holding onto their employees despite the labor market stagnating, with job vacancies reaching their lowest level in almost 2-1/2 years in July. This is because they had trouble filling positions during the pandemic.

As a result, pay growth is continuing to be strong, which is boosting consumer spending. While single-family homebuilding was solid in July, retail sales increased significantly.

Although this undoubtedly overstates the status of the economy, economists have increased their third-quarter growth projections to as high as a 5.9% rate.