Revised data from the Commerce Department puts second-quarter economic growth at 3.8%. This could potentially complicate the Fed's decisions as they tend to cut interest rates when the economy is struggling, but data shows that it actually isn't. The 3.8% increase was higher than the most recent estimate of 3.3% and is actually the strongest reading since the third quarter of 2024. It shows actually that the U.S. economy is resilient, even in the face of unemployment concerns and inflation.
The revision reflected stronger growth in consumer spending, from 1.6% to 2.5%, even with consumers seeming not too optimistic about spending. Data shows that despite their pessimism regarding spending, their willingness to spend actually hasn't changed.
Meanwhile, despite the Fed's prediction that unemployment would climb from 4.3% to 4.5%, the latest data actually doesn't support this, it instead alleviates some worries about further deterioration in the job market. This suggests that the economy is doing just fine even though there's a slowdown in employment growth.
But this doesn't actually mean the U.S. economy is in the best state as the second quarter reflects the three months ending June 30. The growth picture has changed since then. A slowing labor market combined with Trump's combination of aggressive tariffs and immigration enforcement has generated concern about little growth. Even with consumer spending remaining resilient, there's a concern that lower and middle income families are being squeezed as upper income consumers continue to spend, so the resilience in consumer spending doesn't really describe lower and middle income consumers. It also really could just be that ahead of tariff, households imported more (so consumed more) to avoid them.
With regards to concerns about the job market, the Fed cut interest rates to boost economic growth, but Thursday's positive economic data complicates the situation because there seems like there may be less of a need for lower interest rates to stimulate growth. But even this thinking could be problematic because GDP growth could be extremely uneven.
There's concerns that tech companies' spending on AI is single-handedly propping up the economy especially because federal spending cuts and uncertainty regarding tariffs have clouded sentiment elsewhere. The problem with this though is that it makes GDP growth uneven and uncertain. Some people have even suggested that without tech-related spending, the U.S. would be in a recession this year.
The U.S. really needs other sources of GDP growth as well.
Source: https://www.nbcnews.com/business/economy/us-gdp-second-quarter-consumers-buying-rcna233692
I think the revised growth data shows both the strengths and weaknesses of the U.S. economy. I agree that relying so heavily on one sector, like tech, makes the overall economy more vulnerable if conditions shift.
ReplyDeleteThe idea that without AI spending, we might be in a recession is wild. It just goes to show how concentrated our economic momentum has become. We really do need more diverse sources of growth to keep things stable.
ReplyDeleteThe latest GDP revision really shows the resilience of the U.S. economy, but it also highlights how uneven that growth really is. While strong consumer and tech spending are keeping numbers up, underlying pressures on the labor market and middle-income households raise questions about how sustainable this momentum will be.
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