GDP is growing at 2.8% annually, which indicates that the economy is doing well. (iStock )
The pleasant surprise was that gross domestic product (GDP) grew 2.8% year-on-year in the second quarter. Advance quote This is good news for the overall economic outlook, as a GDP growth of between 2% and 3% indicates the U.S. economy is doing well, according to data released by the U.S. Bureau of Economic Analysis. GDP grew just 1.4% in the first quarter.
As GDP increases and the economy stabilizes, it becomes more likely that the Federal Reserve will cut interest rates. This sharp increase in economic growth suggests that an interest rate cut may be on the way.
“Second-quarter GDP came in better than expected, restoring confidence that the economy is settling into a sustainable level of growth,” Kurt Long, deputy chief economist at Americas Credit Unions, said in a statement. “Recent statements from Federal Reserve officials confirm that interest rate cuts are clearly on the horizon, but such measures are not necessary to avert a recession, but rather are a response to moderating inflation.”
The increase in real GDP was mainly due to an increase in personal consumption, as well as an increase in private inventory investment and nonresidential fixed investment.
Consumer spending increased in both the services and goods industries. In the services industry, health care was one of the top spending categories, along with housing and recreational services. In terms of goods, automobiles and their parts were the largest contributors to GDP growth. Furniture, household appliances, gasoline, and other energy goods also contributed.
“Increased consumer spending on durable goods and increased business spending on inventory accounted for a big part of the economic expansion last quarter,” said Mike Fratantoni, senior vice president and chief economist at the Mortgage Bankers Association.
“The decline in net exports reflects the continued slowdown in global growth and a stronger dollar,” Frantantoni said. “Sales growth is outpacing what’s needed to stave off rising unemployment, but the mix suggests the economy may be slowing going forward.”
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The Fed may cut interest rates in September
Consumers are eagerly awaiting a cut in the federal funds rate, which could lower interest rates on mortgages, student loans and other loans. Earlier this year, consumers were expected to see six rate cuts by the end of the year, but that’s looking increasingly unlikely.
Thanks to a better than expected GDP report, Economists believe September will be the first month that the Federal Reserve cuts interest rates, and experts estimate there is a 99.8% chance that the rate will be cut in September.
It’s also likely that there will be several more rate cuts before the end of the year, with experts saying there is a 97.4% chance of at least two more rate cuts by the end of December.
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Fears of a recession remain for many Americans
Despite signs that the economy is heading in the right direction, fears remain that a recession may already be underway or is at least approaching: About three in five people believe the U.S. is currently in a recession. Research suggests From Affirm.
The survey asked 2,000 Americans why they are not confident about the current economy. Not surprisingly, inflation and rising prices were the most common reason (68%) for thinking the US is in a recession. Another 50% think the US is in the middle of a recession because their family or friends are constantly complaining about money problems.
The majority of respondents believe the recession began about 15 months ago and don’t think it’s ending anytime soon: Consumers don’t think the economy will officially begin to recover until at least July 2025. Again, inflation is a big part of why respondents believe a recession is happening now.
About 68% of Americans say inflation is negatively impacting their financial future plans, making it harder to save for big purchases.
“With confidence in the U.S. economy at its lowest point, consumers are rushing to find ways to regain control of their finances,” said Vishal Kapoor, senior vice president of product at Affirm. “Amid these levels of uncertainty and doubt, we believe the antidote to the current ‘downturn’ is more choice and transparency in how people manage their finances.”
54% of Americans have used or are considering “buy now, pay later” options to maintain control over their finances, and surveyed consumers noted that BNPL helps them better manage their day-to-day budgets.
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