By David Harrison
The U.S. economy grew at a 2.1% annualized rate in the second quarter after adjusting for seasonal effects and inflation, the Commerce Department said Wednesday, a slightly slower pace than previously estimated.
The downward revision was mostly due lower estimates of private inventory investment and nonresidential construction. State and local government spending was revised up, the department said.
Economists think the economy could have picked up steam over the summer. A growth forecast produced by the Federal Reserve Bank of Atlanta last week estimated a 5.9% growth rate for the July to September period. A separate forecast by S&P Global Market Intelligence estimated a 3.3% growth rate in the third quarter, driven by retail sales, which rose a seasonally adjusted 0.7% last month, the strongest pace this year.
The Commerce Department's first estimate of second-quarter growth had pointed to a 2.4% rate, up from 2% in the first quarter.
The economy has been growing steadily over the past year following a brief contraction early in 2022. Growth has been buoyed by a strong labor market which has supported consumer spending. Household expenditures grew at a 1.7% pace in the second quarter, down from 4.2% in the first three months of the year.
Private investment, which had sagged last year, grew at a 3.3% pace in the second quarter, following an 11.9% drop in the first.
Residential construction, which has been battered by higher interest rates, fell 3.6% in the quarter. Nonresidential construction rose 11.2%, offsetting the decline in homebuilding. Federal subsidies under the Inflation Reduction Act have resulted in a boom in factory building.
Government spending rose 3.3%, driven by a 4.7% rise in state and local spending.
So far the U.S. economy has defied economists' predictions that a recession would start in the middle of the year caused by the Federal Reserve's rate increases. Last month, Fed officials raised rates to between 5.25% and 5.5%, a 22-year high.
Higher rates have helped cool inflation, which stood at 3.2% in the 12 months leading up to July, according to the Labor Department. But they have not yet resulted in a weaker labor market as economists had expected.
Employers added 187,000 jobs in July, according to the Labor Department. The agency will release August figures on Friday.
Write to David Harrison at david.harrison@wsj.com
(END) Dow Jones Newswires
08-30-23 0936ET
