The US economy grew at a robust 3% annual rate last quarter, owing to strong consumer spending and business investment, the Commerce Department reported Thursday. This is an improvement above the prior forecast of 2.8% and a considerable increase over the 1.4% growth rate in the first quarter of 2024.
Consumer expenditure, which accounts for 70% of economic activity, rose by 2.9%, while business investment increased by 7.5%, mainly in equipment.
Despite rising interest rates, the economy has remained robust. According to the Conference Board and the University of Michigan, consumer confidence has increased as inflation has fallen from a four-decade high. The Federal Reserve’s preferred inflation indicator, the personal consumption expenditures (PCE) index, increased by 2.5% last quarter, down from 3.4% in the first quarter, although core PCE inflation also fell.
Comerica Bank economist Bill Adams predicted that strong consumer spending will continue to underpin growth in the second half of the year. The Federal Reserve, which raised interest rates 11 times in 2022 and 2023 to combat inflation, is now considering rate cuts to achieve a “soft landing” without causing a recession.
With inflation approaching the Fed’s 2% target, lower interest rates might help stabilise the economy and assist the employment market, which has shown symptoms of weakness.
