US economy is expanding faster than expected
The US economy grew by 2.8% in the second quarter of 2024, which was stronger than expected.
Commerzbank Economic Research
July 25 2024
Data: In the second quarter of 2024, the US economy grew by 2.8% (these and all subsequent growth rates are annualized rates of change against the previous quarter). This was even stronger than we had expected (consensus 2.0%, Commerzbank forecast 2.2%).
Details: Growth was broad-based, with the exception of construction. Investments in equipment (+11.6%) and in intellectual property such as software (+4.5%) in particular increased. This may reflect the AI boom. The government also increased spending noticeably (+3.1%), as did private consumers (+2.3%). Here, falling inflation supported real disposable income.
In contrast, residential construction (-1.4%) and commercial construction (-3.3%) contracted due to high interest rates. In the latter, the impetus provided by various government subsidy programs, such as for the construction of chip factories, is obviously waning.
Imports rose sharply, with many companies possibly wanting to bring their goods to the US before tariffs are raised. Inventories increased significantly as a result. Overall, however, this had no impact on growth.
Interpretation: The US economy was unable to maintain its very high growth rate in the third (4.9%) and fourth quarters of 2023 (3.4%) this year. However, we had already pointed out in our commentary three months ago that the weaker growth of 1.4% in the first quarter of 2024 was due to one-off factors in inventories and foreign trade and that the underlying pace of growth remains quite high. Today's figures confirm this assessment: in the second quarter, the economy once again expanded faster than the trend growth rate which the Federal Reserve puts at 1.8%.
However, we continue to expect the economy to lose momentum due to the after-effects of the Fed's rate hikes. The labor market, for example, is increasingly showing signs of cooling. At the same time, however, there are no indications that the US economy will plunge into recession. This is because financing conditions have recently improved again for most sectors and strong immigration is supporting private consumption.
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