WASHINGTON (Reuters) – U.S. economic growth was revised lower to a still-solid pace in the second quarter, but momentum appears to have picked up early in the third quarter as a tight labor market underpins consumer spending.
Gross domestic product increased at a 2.1% annualized rate last quarter, the government said on Wednesday in its second estimate of GDP for the April-June period. That was revised down from the 2.4% pace reported last month.
Economists polled by Reuters had expected GDP for the second quarter would be unrevised. The revision reflected downgrades to inventory investment as well as business spending on equipment and intellectual property products.
The economy grew at a 2.0% pace in the first quarter and continues to push ahead despite 525 basis points worth of interest rate hikes from the Federal Reserve since March 2022.
It is expanding at a pace well above what Fed officials regard as the non-inflationary growth rate of around 1.8%.
The economy’s resilience raises the risk of borrowing costs remaining higher for a while, but slowing inflation is fueling optimism that the U.S. central bank is probably done hiking rates and could engineer a “soft landing.” Most economists have walked back their forecasts for a recession this year.
Though the labor market is slowing, with job openings dropping to the lowest level in nearly 2-1/2 years in July, employers are largely hanging on to their workers after difficulties hiring during the pandemic.
That is keeping wage growth elevated, helping to drive consumer spending. Retail sales increased strongly in July, while single-family homebuilding was robust.
Economists have boosted their third-quarter growth estimates to as high as a 5.9% rate, though this likely overstates the health of the economy.
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama)
