WASHINGTON, D.C.: The U.S. economy grew at a robust three percent annual rate in the second quarter of 2024, driven by solid consumer spending and strong business investment, according to the Commerce Department’s final estimate.
This marked a significant jump from the 1.6 percent growth in the first quarter, reflecting the economy’s continued resilience.
Consumer spending, which powers the majority of economic activity, grew by 2.8 percent, slightly below earlier estimates but still healthy. Business investment also contributed, with an 8.3 percent increase, led by a nearly 10 percent rise in equipment purchases. Despite high borrowing costs, these factors helped propel overall growth.
Inflation continued to ease, nearing the Federal Reserve’s target. The personal consumption expenditures (PCE) price index, the Fed’s preferred inflation gauge, rose by 2.5 percent, down from 3.4 percent in the previous quarter. Excluding food and energy prices, core PCE inflation was 2.8 percent, a notable drop from 3.7 percent in the first quarter.
Although the U.S. economy has withstood 11 interest rate hikes by the Fed over the past two years, the job market has softened. Between June and August, employers added an average of 116,000 jobs per month, the weakest three-month stretch since mid-2020. The unemployment rate has edged up to 4.2 percent from its low of 3.4 percent last year, yet it remains relatively low.
In response to the cooling inflation and a more sluggish job market, the Fed recently cut its benchmark interest rate by half a percentage point, its first cut in over four years. Economists expect that lower rates will spur growth in sectors like housing, manufacturing, and auto sales, while also stabilizing job growth.
“The economy is in pretty good shape,” Bill Adams, chief economist at Comerica Bank, wrote in a commentary.
“After a big rate cut in September and considerable further cuts expected by early 2025, interest-rate-sensitive sectors like housing, manufacturing, auto sales, and retailing of other big-ticket consumer goods should pick up over the next year. Lower rates will fuel a recovery of job growth and likely stabilize the unemployment rate around its current level in 2025.”
Consumer sentiment has improved, with Americans continuing to spend on durable goods like cars and appliances. Industrial production and home construction have also rebounded, indicating underlying economic strength.
Despite progress in taming inflation, many Americans still feel the pinch of high prices for essentials like groceries and rent. The Commerce Department’s latest revisions show that economic growth from 2018 to 2023 was slightly stronger than previously reported, averaging 2.3 percent annually.
