US economic growth for last quarter revised up to solid 3% annual rate

WASHINGTON — The U.S. economy grew at a healthy 3 percent annual pace in the latest quarter, fueled by strong consumer spending and business investment, the government said Thursday in an update to its initial assessment.

The Commerce Ministry had previously estimated that the country's gross domestic product (the total output of goods and services) grew at a rate of 2.8 percent from April to June.

Second-quarter growth marked a sharp acceleration from the weak 1.4% growth rate recorded in the first three months of 2024.

Consumer spending, which accounts for about 70% of U.S. economic activity, rose 2.9% year-over-year in the latest quarter, up from the 2.3% the government had previously forecast. Business investment rose 7.5%, led by a 10.8% increase in equipment spending.

Thursday’s report reflects an economy that remains resilient despite pressure from still-high interest rates. The state of the economy weighs heavily on voters ahead of the November presidential election. Many Americans remain frustrated by high prices, even though inflation has fallen since hitting a four-decade high in mid-2022.

But measures of consumer sentiment by the Conference Board and the University of Michigan have recently shown improving confidence in the economy.

GDP revisions show the U.S. economy was in good shape by mid-2024, said Bill Adams, chief economist at Comerica Bank. Strong growth in consumer spending propelled the economy forward in the second quarter, and rising consumer confidence in July suggests it will propel growth in the second half of the year as well.

The latest GDP estimate for the April-June quarter includes figures showing that inflation continues to moderate while remaining just above the Federal Reserve’s 2% target. Central banks have favored the inflation gauge, the personal consumption expenditures (PCE) index, which rose at an annual rate of 2.5% in the latest quarter, down from 3.4% in the first quarter of the year. And excluding volatile food and energy prices, so-called core PCE inflation rose at a 2.7% pace, down from 3.2% in January-March.

The two PCE inflation figures released Thursday marked a slight improvement from the government's first estimate.

A GDP category that measures the underlying strength of the economy grew at a healthy annual rate of 2.9%, up from 2.6% in the first quarter. The category includes consumer spending and private investment but excludes volatile items such as exports, inventories and government spending.

To combat soaring prices, the Fed raised its benchmark interest rate 11 times in 2022 and 2023, taking it to a 23-year high and helping to reduce annual inflation from a peak of 9.1% to 2.9% last month. The resulting much higher borrowing costs for consumers and businesses were widely expected to trigger a recession. Yet the economy has continued to grow and employers have continued to hire.

With inflation barely above the Fed's 2% target and expected to slow further, Fed Chairman Jerome Powell has declared victory over inflation, making the Fed ready to begin cutting its benchmark rate at its next meeting in mid-September.

A prolonged period of lower Fed interest rates would aim to achieve a soft landing, in which the central bank would manage to contain inflation, maintain a healthy jobs market and avoid triggering a recession. Lower rates for auto loans, mortgages and other forms of consumer credit would likely follow.

The central bank has recently focused more on supporting the gradually weakening jobs market than continuing to fight inflation. The unemployment rate has risen for four straight months, to 4.3%, still low by historical standards. Job openings and the pace of hiring have also declined, though they remain at relatively healthy levels.

Thursday's report is the Commerce Department's second estimate of GDP growth for the April-June quarter. It will release its final estimate late next month.

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