The US economy continues to expand in all sectors—with consumers as well as in manufacturing. But it was consumers that provided most of the 2.4 percent increase in Gross Domestic Product (GDP) in the ‘advance’ (first of three) estimates of second quarter economic growth.
This should confirm once and for all that no recession is imminent this year. Even if growth in Q3 and Q4 slowed, the overall year’s growth would still be positive.
And the inflation rate is cooperating. The PCE price index increased 2.6 percent, compared with an increase of 4.1 percent in Q1. Excluding food and energy prices, the PCE price index increased 3.8 percent, compared with an increase of 4.9 percent.
MarketWatch reported spending on services rose three times faster than outlays on goods. Americans are spending more on travel, recreation, dining out and the like now that the pandemic is over.
Businesses, another major leg of the economy, ratcheted up fixed investment at a nearly 5 percent annual pace. That’s the biggest increase in six quarters. Investment rose at double-digit rates, in percentage terms, for both equipment and structures.
Part of the increase likely stems from a 2021 law passed by the Biden administration that gives subsidies and tax credits to businesses that investment in green energy and technology such as chip making.
The list of improving sectors was long:
“The increase in consumer spending reflected increases in both services and goods,” said the BEA. “Within services, the leading contributors to the increase were housing and utilities, health care, financial services and insurance, and transportation services. Within goods, the increase was led by recreational goods and vehicles as well as gasoline and other energy goods. The increase in nonresidential fixed investment reflected increases in equipment, structures, and intellectual property products. The increase in state and local spending reflected increases in compensation of state and local government employees and gross investment in structures. The increase in private inventory investment reflected increases in both farm and nonfarm inventories.”
Goldman’s chief economist, Jan Hatzius, trimmed the probability of a recession in the next 12 months to 20 percent from 25 percent — well below the 54 percent median among forecasters who participated in the last Wall Street Journey survey.
“The main reason for our cut is that the recent data have reinforced our confidence that bringing inflation down to an acceptable level will not require a recession,” said Hatzius.
Federal Reserve Chair Powell said the Fed Governors now believe we can avoid a recession at yesterday’s post-FOMC meeting, after announcing raising the benchmark interest rate to a range of 5.25 percent to 5.5 percent, the highest level in 22 years, in order to combat “elevated” inflation.
Consumers like the continued growth, according to the Conference Board's Consumer Confidence Index that just jumped from 110.1 to 117.
“Consumer confidence rose in July 2023 to its highest level since July 2021, reflecting pops in both current conditions and expectations,” said Dana Peterson, Chief Economist at The Conference Board. “Headline confidence appears to have broken out of the sideways trend that prevailed for much of the last year. Greater confidence was evident across all age groups, and among both consumers earning incomes less than $50,000 and those making more than $100,000.”
As I said last week, it turns out the American consumer is the mainstay of US growth, and we should celebrate that fact.
Harlan Green © 2023
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen
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