In the second quarter, the US economy demonstrated consistent growth, with the real gross domestic product (GDP) rising at a steady annualized rate of 3%. This figure remained unchanged from previous projections, indicating a solid performance in the economic landscape. Contrary to expectations, consumer spending faced a downward revision, bringing growth rates down to 2.8%, which was slightly below prior estimates.
In the first quarter of the year, real GDP experienced a notable increase of 1.6%, also reflecting a slight upward adjustment from earlier estimates. The Chief Economist at Stifel, Lindsey Piegza, alongside Economist Lauren Henderson, underscored the implications of these economic indicators in their analysis.
They emphasized the need for a cautious and patient strategy regarding future Federal Reserve rate reductions, expressing that the current domestic activities provide a solid historical context to inform these decisions. Last week, the Federal Open Market Committee from the central bank executed a notable cut to its benchmark lending rate, reducing it by 50 basis points.
This move contrasted with the anticipated 25-basis-point cut, illustrating a more aggressive approach than what was forecasted by Bloomberg consensus. Additionally, the FOMC's Summary of Economic Projections indicated a revised economic growth outlook for 2024, now lowered to 2% from a previous estimate of 2.1%, while forecasts for subsequent years, 2025 and 2026, remained steady at 2% each. The data from the Bureau of Economic Analysis (BEA) hinted at shifts in consumer spending patterns.
Personal consumption expenditures, a key indicator of consumer behavior, reflected a downward adjustment, revealing a growth rate of 2.8% in the second quarter. Previously, this figure had been pegged at 2.9%, highlighting a trend that aligns with broader market sentiments and expectations drawn from Bloomberg's consensus projections. Beyond consumer spending, the latest GDP statistics showed upward revisions concerning private inventory investment and federal government spending.
Conversely, there were downward adjustments noted in nonresidential fixed investment and exports, painting a comprehensive picture of economic shifts as assessed by the bureau. Inflation trends during this period also captured attention, with headline personal consumption expenditures (PCE) inflation rising by 2.5%.
Meanwhile, core PCE inflation—which eliminates volatile food and energy prices—demonstrated a growth of 2.8%, figures that remained unchanged compared to prior estimates. Piegza and Henderson concluded their assessment by noting a lack of impending downturn signs, despite some indicators suggesting modest cooling in labor market strength.
They highlighted that focus remains on the persistent challenge of stabilizing prices at a sustainable inflation level of 2%. Their insights reflect a cautiously optimistic outlook amidst the dynamic economic landscape driven by consumer behavior and monetary policy changes..