U.S. GDP Growth Exceeds Expectations in Second Quarter

In the second quarter of 2024, the U.S. economy accelerated significantly, with real GDP growth reaching an annualized rate of 3.0%. This was significantly higher than the 1.4% growth rate in the first quarter and exceeded the previous “preliminary” estimate of 2.8%. This strong performance was driven by increases in consumer spending, private inventory investment, and non-residential fixed investment.

The acceleration in GDP growth was largely attributable to a rise in private inventory investment and a significant acceleration in consumer spending. This surge in consumer activity suggests that economic confidence is growing and could signal continued expansion in the quarters ahead.

Despite the bright performance in economic growth, inflation indicators remain a concern. The Gross Domestic Product Purchasing Price Index rose 2.4%, slightly higher than previously estimated. And the Personal Consumption Expenditures (PCE) price index, a key inflation indicator of interest to the Fed, rose 2.5%. Even excluding volatile food and energy prices, the core PCE price index rose 2.8 percent, suggesting that inflationary pressures remain.

In the second quarter, nominal personal income increased by a whopping $233.6 billion, and disposable personal income rose by 3.6 percent. However, after adjusting for inflation, real disposable income grew by a relatively modest 1.0%. The personal savings rate fell to 3.3%, suggesting that consumers may be drawing on their savings to support consumption.

Corporate profits rebounded in the second quarter, increasing by $57.6 billion, reversing the decline in the first quarter. Domestic financial firms continued to grow, while nonfinancial firms reversed previous losses. However, profits from international operations declined slightly.

Job Market Remains Solid Amid Economic Volatility

In a sign that the labor market remains strong, initial claims for unemployment benefits fell to 231,000 for the week ending August 24, below the 232,000 expected. This suggests that businesses are retaining employees despite economic uncertainty.

The insured unemployment rate remained unchanged at 1.2%, while the number of people receiving unemployment benefits increased slightly to 1.868 million. However, the four-week moving average of initial jobless claims continued to decline, indicating overall stability in the job market.