WASHINGTON- The US economy likely maintained a moderate pace of growth in the second quarter as labor market resilience underpinned consumer spending, while businesses boosted investment in equipment and built more factories, potentially keeping a much-feared recession at bay.
The Commerce Department’s snapshot of second-quarter gross domestic product on Thursday is also expected to show the housing market slump nearing an end. Outside the housing market and manufacturing, the economy has largely weathered the 525 basis points in interest rate hikes from the Federal Reserve since March 2022 as the US central bank battled inflation.
Economists have since late 2022 been forecasting a downturn, but with price pressures retreating, some now believe that the soft-landing scenario for the economy envisaged by the Fed is feasible. The central bank on Wednesday raised its policy by 25 basis points to a 5.25 percent-5.50 percent range.
“This will be another indication that the economy is not tipping into recession. Much of the effect of the rate hikes already has occurred,” said Dean Maki, the chief economist at Point72 Asset Management in Stamford, Connecticut. “As long as the Fed is content that inflation is moderating at a fast enough pace, they’re not going to implement the kind of additional rate hikes that would be needed to bring about a recession.”
According to a Reuters survey of economists, GDP growth likely increased at a 1.8 percent annualized rate last quarter after rising at a 2.0 percent pace in the first quarter.
Consumer spending, which accounts for more than two-thirds of US economic activity, likely remained a pillar of support, although the pace of growth slowed from the second quarter’s robust 4.2 percent rate. Spending on long-lasting manufactured goods has slowed after booming during the COVID-19 pandemic. Services spending is, however, taking up some of the slack.
Spending is being propped up by excess savings accumulated during the pandemic, estimated by economists to be as much as $2.1 trillion at one point, debt and strong wage gains from the tight labor market as companies hoard workers after struggling to find labor during the pandemic. That is underscored by persistently low levels of layoffs.
The weekly jobless claims report from the Labor Department on Thursday is likely to show first-time applications for state unemployment benefits rising 7,000 to a seasonally adjusted 235,000 for the week ended July 22, according to a Reuters poll.
The number of people receiving benefits after an initial week of aid, a proxy for hiring, is seen falling to 1.750 million during the week ending July 15 from 1.754 million in the prior week. This covered the week that the government surveyed households for July’s unemployment rate. At 3.6 percent in June, the jobless rate was not too far from multi-decade lows.
“There are some pockets of job losses being announced here and there, but it does appear that people are getting jobs rather quickly if they are losing their jobs,” said Mike Skordeles, head of US economics at Truist Advisory Services in Atlanta.
