Will the US Economy Be Able to Sustain Robust Growth the Rest of 2024?

The U.S. system grew acold much than expected successful nan 2nd quarter, astatine a gait that economists don't judge is sustainable successful nan 2nd half of nan year.

Gross home product, a measurement of nan economy's output, grew astatine an yearly complaint of 2.8% successful nan 2nd quarter, according to caller information released Thursday by nan Bureau of Economic Analysis. Remarkably, that number was double nan yearly complaint successful nan first quarter.

The maturation was fueled by consumers who continued to spend, businesses that increased investments and a authorities that boosted expenditures. Economists opportunity it can't last.

"We deliberation Q2 will extremity up being nan champion 4th for nan system this year,” wrote Nationwide Economist Oren Klachkin. “We should person cooler GDP reports from present connected out."

High Interest Rates, Inflation Taking a Toll

So acold successful nan early parts of nan 3rd quarter, grounds has been mounting that economical maturation is slowing.

"Earnings reports person been lackluster truthful acold this net season, consumers are showing signs of tiring, and business superior finance will apt spot a lull," wrote Scott Anderson, main U.S. economist astatine BMO.

High liking rates and stubborn inflation person apt put nan kibosh connected continued spending growth, arsenic nan Federal Reserve continues to put unit connected nan economy.

The Federal Reserve has held its influential fed costs rate astatine a much than two-decade precocious for nan past twelvemonth successful an effort to curb inflation. A precocious fed costs rate makes borrowing much costly for consumers and businesses, a move designed to slow nan system and tame value increases.

Fed officials are wide expected to cut their cardinal liking complaint successful September, keeping nan strain connected passim nan 3rd quarter.

"The system has blemishes, and second-quarter growth, which did lag nan 2nd half of past year, is unsustainable," wrote Moody's Analytics Economist Scott Hoyt. "Inflation is still supra nan Federal Reserve’s target, truthful nan Fed is keeping its ft connected nan monetary brake. ....The risks of nan system slowing much than desired are high."

Consumer Spending Expected to Slow

Economists person agelong predicted a slowdown successful consumers' spending for nan year's 2nd half, arsenic headwinds measurement peculiarly connected lower-income households.

Younger group and those pinch little income weren't capable to build savings during nan pandemic and person been relying connected in installments and a beardown labour marketplace to support up their spending, economists theorize. As in installments becomes harder and harder to travel by and nan labour marketplace tips much successful favour of employers, their spending will beryllium harder to maintain.

However, nan bottommost won't wholly autumn retired of spending, arsenic wealthier households will proceed to buoy unit sales, experts said.

"Still-substantial excess savings built up during nan pandemic by middle- and particularly high-income households proceed to support spending giving consumers rate to spend, particularly arsenic their wealthiness rises," Hoyt said.

Trade Continues to Drag Growth

In Thursday's release, each of nan awesome components that spell into calculating GDP contributed much to maturation successful nan 2nd 4th than successful nan 1 prior, Hoyt said. There was 1 exception: Imports grew much rapidly, which is simply a larger resistance connected wide growth.

When U.S. consumers walk much connected overseas products than U.S. producers waste to overseas consumers, GDP (which measures nan country's output) decreases.

Wells Fargo economists said arsenic user request cools, waste and acquisition could go little of a antagonistic facet for GDP, but it's not guaranteed.

Election Uncertainty Will Lead to Caution

With nan statesmanlike predetermination up successful nan aerial and moreover much uncertainty caused by the extremity of President Joe Biden's campaign, companies and consumers are keeping an oculus connected what's ahead. The taxation code, nationalist debt, and galore different financial matters astatine liking successful nan election, each of which person cascading effects connected households' finances.

"Election and fiscal argumentation uncertainty will apt adhd to nan malaise until businesses get much clarity astir nan early way of taxation and spending policies of nan Federal authorities and nan style of nan economical slowdown," BMO's Anderson wrote.