The US economy is likely to maintain a moderate pace of growth in the second quarter as the resilience of the labor market boosts consumer spending, which could sustain the much-feared recession.
On Thursday, the Commerce Department’s second-quarter GDP statistics is likely to demonstrate that the housing market slump is coming to an end. Outside of the housing market and manufacturing, the economy has largely outpaced the Fed’s 525 basis points in rate hikes since March 2022 as the US central bank battled inflation.
Economists have been anticipating a downturn since late 2022, but with price pressures easing, some now believe that the soft landing scenario for the economy envisioned by the Fed is possible. On Wednesday, the central bank raised policy by 25 basis points to a range of 5.25%–5.50%.
Consumer spending, which accounts for more than two-thirds of US economic activity, is likely to remain a mainstay of support, although the pace of growth has slowed from a solid 4.2% rate in the second quarter.
Spending is being supported by excess savings accumulated during the pandemic, which economists have estimated at as much as $2.1 trillion at one point, debt, and strong wage gains from a tight labor market as companies hoard workers after struggling to find work during the pandemic. This is confirmed by the continued low level of layoffs.
The number of persons getting benefits after an initial week of help, which is a proxy for employment, is predicted to dip to 1.750 million during the week ending July 15 from 1.754 million the previous week.
