Economic growth exceeded expectations in the U.S. spring, as falling inflation and a strong labor market allowed consumers to continue spending, even with high interest rates weighing on their finances.
The inflation-adjusted Gross Domestic Product increased at an annual rate of 2.8% in the second quarter, the Commerce Department reported on Thursday (25). This rate is higher than the 1.4% recorded in the first quarter, but below the unexpectedly strong growth in the second half of last year.
Consumer spending, the backbone of the U.S. economy, rose at an annual rate of 2.3% in the second quarter – a solid pace, although much slower than in 2021, when businesses reopened after pandemic-induced closures. Inflation, which unexpectedly increased earlier in the year, decreased in the second quarter.
Overall, the data suggests that the economy remains on track for a rare “soft landing,” a term used to describe when inflation decreases without triggering a recession.
Inflation continued to decline. Prices rose at a rate of 2.6%, down from 3.4% in the first quarter and only modestly above the Fed’s long-term target of 2% per year.
Fed officials will meet next week to assess when they will begin to reduce interest rates. Analysts do not expect a rate cut next week, but believe that the Central Bank (Fed) may signal that such a move could occur as early as September if inflation continues to fall.
The Real Estate Market
The economy as a whole has proven surprisingly resilient in the face of high interest rates. However, the Fed’s policies have had a clear impact in some areas. The real estate market, in particular, has faced difficulties, as high borrowing costs have made both purchasing existing homes and building new ones more expensive.
However, there are signs that perhaps, just perhaps, the worst may be over for homebuyers.
A recent Zillow real estate report found that nearly one in four home sellers offered price cuts in June. This is the highest level for that month since 2018.
Additionally, the average interest rate on a 30-year fixed mortgage fell last week to its lowest level since mid-March.
This, along with a surge in new home construction and the expectation that the Fed may begin cutting interest rates in September, could make home buying more affordable in the future.
In another promising indicator for buyers, home price appreciation is slowing, according to the Zillow report. The annual appreciation was 3.2% in June, and monthly growth slowed to 0.6%, with June’s price appreciation being the slowest since 2011.
Source: The New York Times and CNN