The U.S. economy grew faster than anticipated in the second quarter of 2024, with real gross domestic product (GDP) increasing at an annual rate of 2.8%. This robust growth rate marks a significant acceleration from the 1.4% growth observed in the first quarter and represents the third-best quarter in the last 10 quarters.
Key Drivers of Growth
The increase in real GDP was primarily driven by:
- Consumer Spending: Both services and goods saw notable upticks. Leading the charge within services were health care, housing and utilities, and recreation services. For goods, the top contributors included motor vehicles and parts, recreational goods and vehicles, furnishings and durable household equipment, and gasoline and other energy goods.
- Private Inventory Investment: Businesses bolstered their inventories significantly, reflecting confidence in future demand.
- Nonresidential Fixed Investment: There was a marked increase in investment in commercial properties and equipment, signaling business optimism and expansion efforts.
Residential Investment Slows
Contrasting the overall positive trend, residential fixed investment declined by 1.4%. This marks the first time since Q2 2023 that the sector has dragged on the economy, suggesting potential challenges in the housing market.
Implications for the Federal Reserve
The unexpected strength in Q2 growth complicates the Federal Reserve’s outlook. Market expectations have been tilting towards a rate cut in September, but solid economic performance might lead the Fed to reconsider its stance. Balancing economic growth with inflation control will be key as policymakers navigate the remainder of the year.
