U.S. GDP Surges 2.4% The Economy Is Defying Expectations.

The Bureau of Economic Analysis said Thursday that increases in consumer spending, nonresidential fixed investment, state and local government spending, private inventory investment, and federal government spending contributed to the increase in second-quarter GDP.

“It’s great to have another quarter of positive GDP growth in tandem with a consistently slowing inflation rate,” wrote Steve Rick, chief economist at TruStage, in a note.

“After yesterday’s resumption of interest rate hikes, it’s encouraging to see the aggressive hike cycle working as inflation continues to decline. Consumers are getting a reprieve from the rising costs of core goods, and the U.S. economy is off to a stronger start to the first half of the year,” Rick added.

Economists were mostly anticipating a slowdown in growth in consumer spending, but Thursday’s data shows that spenders refuse to quit. The increase in consumer spending was driven by both goods and services.

Service contributors included housing and utilities, health care, financial services and insurance, and transportation services. The contribution to goods spending was led by recreational goods and vehicles as well as gasoline and other energy goods.

Even though the GDP report pointed to a resilient consumer, some experts anticipate a slowdown in spending is coming.

“We expect some slowing in consumer spending in the coming quarters on the back of a weakening labor market, the end of the excess savings boom, tighter credit financing conditions, and what is likely to be softening consumer confidence,” William Blair macro analyst Richard de Chazal wrote in a note Thursday.

While the growth in GPD was a surprise to many, the Federal Reserve Bank of Atlanta’s GDPNow model, which runs an estimate of real GDP growth based on available economic data, anticipated GDP growth of 2.4%. The Atlanta Fed said that following the housing starts report from the Census Bureau on July 19, they increased their expectations for real growth in residential investment in the second quarter.

The GDP report was the first piece of economic data following the Federal Reserve’s meeting on Tuesday and Wednesday, which ended with a quarter-point increase in the bank’s target for the fed-funds rate. That leaves the central bank’s benchmark rate at a range of 5.25% to 5.5%.

“The Fed has been hesitant to close the door on additional rate hikes, and if today’s strong data is any indication, it may have to wait a while longer before it’s comfortable signaling this tightening cycle has run its course,” Mike Loewengart, head of model portfolio construction at Morgan Stanley Global Investment Office, wrote in a note. “But for now, the indicators are still pointing toward a relatively soft economic landing.”

Stocks were rising Thursday following the Fed’s decision and the GDP numbers. The
Dow Jones Industrial Average
gained 73 points, or 0.1%. The
S&P 500
was up 0.8% while the tech heavy
Nasdaq Composite
was rising 1.5%.

Write to Angela Palumbo at [email protected]