WASHINGTON — The U.S. economy grew at a healthy annual pace of 3% last quarter, fueled by strong consumer spending and business investment, the government said Thursday in an upward move from its initial estimate.
The Commerce Department had previously estimated that the country’s gross domestic product (total output of goods and services) grew 2.8% from April through June.
Growth in the second quarter showed a strong acceleration from the sluggish 1.4% growth in the first three months of 2024.
Consumer spending, which accounts for about 70% of U.S. economic activity, rose at an annual rate of 2.9% last quarter, compared with the government’s initial estimate of 2.3%. Business investment rose at a rate of 7.5%, led by a 10.8% jump in equipment spending.
Thursday’s report showed the economy remains resilient but is still gradually slowing amid pressure from persistently high interest rates.
The state of the economy is weighing heavily on voters ahead of the November presidential election. Many Americans are still irritated by high prices, even as inflation has fallen from a 40-year high in mid-2022.
The Federal Reserve raised its benchmark interest rate 11 times in 2022 and 2023, taking it to a 23-year high, and annual inflation fell 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. Still, the economy has continued to grow and employers have continued to hire.
With inflation just above the Fed’s 2% target and likely to slow further, Chairman Jerome Powell essentially declared the victory over inflationAs a result, the Fed is poised to cut its key interest rate when it meets again in mid-September.
A sustained period of lower interest rates by the Fed would be intended to achieve a “soft landing,” in which the central bank successfully curbs inflation, maintains a healthy labor market and prevents a recession from developing. Lower rates on auto loans, mortgages and other forms of consumer credit would probably follow.
The central bank has recently been more concerned with supporting the labor market, which is gradually weakening, than with continuing to combat inflation. The unemployment rate has risen for four months in a row, to 4.3%, still low by historical standards. The number of vacancies and the pace of hiring have also fallen, although they remain at relatively solid levels.
Thursday’s report was the Commerce Department’s second estimate of GDP growth in the April-June quarter. It will release its final estimate late next month.