US economy grew at 2.8 percent rate in second quarter, blowing past expectations

The U.S. economy grew at an annual rate of 2.8 percent in the second quarter of 2024, according to new Commerce Department data released Thursday.

Economists expected gross domestic product (GDP) to grow by 1.9 percent between April and June, closer to the 1.4 percent growth posted in the first quarter of the year.

“The US economy is much stronger than people realize and to the extent that markets were worried about a growth slowdown, they should breathe a sigh of relief after this morning’s GDP number,” said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance.

The strong report comes as the Federal Reserve is set to meet next week to consider changing interest rates, which it has held steady since last July.

The central bank has kept rates at a two-decade high, as inflation has remained stubbornly above the Fed’s target of 2 percent.

Inflation has improved significantly since peaking at a 40-year high of 9.1 percent in June 2022. However, several higher-than-expected inflation readings in the first quarter delayed hopes of rate cuts.

More recent inflation readings have reignited hopes of imminent rate cuts. Consumer prices fell for the first time since the pandemic in June, dipping 0.1 percent. Prices were up 3 percent year over year, down from 3.3 percent in May.

“The second quarter pace of disinflation has effectively negated the scare that was the first quarter, it now looks like we are back to the 2% glide path,” said Olu Sonola, Fitch Ratings head of economic research.

“This is a perfect report for the Fed, growth during the first half of the year is not too hot, inflation continues to cool and the elusive soft landing scenario looks within reach,” he added in a statement.

The labor market, which has remained surprisingly strong over the past two years, is also showing signs of cooling, increasing the potential for rate cuts.

While the June jobs report showed a solid 206,000 jobs added last month, the Labor Department made significant downward revisions to April and May’s jobs gains, totaling 110,000 jobs fewer than initially reported. The unemployment rate also ticked up to 4.1 percent in June.

Traders now largely expect the Fed’s first rate cut to come in September, with the CME FedWatch tool now showing an 87.7 percent chance the central bank will lower rates.

“The sharper-than-expected pick-up in second-quarter GDP growth to 2.8% annualised should make the Fed a bit more comfortable about keeping policy unchanged next week,” said Stephen Brown, deputy chief North America economist for Capital Economics.

However, he added that “the recent loosening of labour market conditions and signs of slower price growth still mean that there is a strong case for a cut at the following meeting in September.” 

President Biden touted Thursday’s strong GDP report while also making sure to share the accomplishment with Vice President Harris, who is now the likely Democratic nominee after Biden opted to step aside last weekend.

“When I took office, we were in the midst of the worst economic crisis since the Great Depression,” Biden said in a statement. “Today’s GDP report makes clear we now have the strongest economy in the world.”

“Thanks to my and Vice President Harris’s economic agenda, our economy grew a robust 2.8% over the last quarter, based on strong American consumers and business investment,” he added. “We’ve created nearly 16 million jobs, wages are up, and inflation is coming down.”

Updated at 10:12 a.m. EDT.