Despite the Federal Reserve’s efforts to tamp down inflation and control economic growth with a series of increases to the federal funds rate, the U.S. economy last quarter defied expectations by growing 2.4%, according to a report by the Bureau of Economic Analysis. GDP increased 2% in the first quarter.
BEA said the second quarter rise “reflected increases in consumer spending, non-residential fixed investment, state and local government spending, private inventory investment, and federal government spending that were partly offset by decreases in exports and residential fixed investment.”
An increase in consumer spending reflected both goods and services. Within goods, BEA said, the increase was led by recreational goods and vehicles, as well as gasoline and other energy.
The second quarter GDP figure comes only a day after the Federal Reserve raised its federal funds rate to 5.5%, the highest in 22 years.
According to a report in the Wall Street Journal, “Consumer spending cooled but rose enough to drive overall growth alongside much stronger business investment in the second quarter. Those factors combined to buck economists’ earlier expectations that a downturn would start in the middle of this year due to higher interest rates.”
“We’ve turned the corner on the risk here, and instead of being heavily weighted to recession, it’s balanced between recession and not recession,” Amy Crews Cutts, chief economist at AC Cutts & Associates, told the Wall Street Journal.
Graeme Pitkethly, chief financial officer at Unilever — whose products include Ben & Jerry’s, Hellmann’s and Dove — told WSJ that consumers in North America are “starting to show signs of caution” as they spend off the excess savings built up during the pandemic. “We still think there’s a possibility of a mild recession,” Pitkethly said.
