The U.S. economy expanded at an annualized rate of 3.3% during the second quarter of 2023, according to the Commerce Department’s latest report. This number has increased from the original projection of 3.0%. It’s above the 3.1% prediction by Dow Jones economists. Consumer spending is up a spectacular 1.6%. This vigorous growth represents a much more resilient pattern of spending and goes a long way to boosting the overall economic performance.
Gross Domestic Product (GDP) has increased about 2.1% during the first half of the year. According to the Atlanta Federal Reserve’s GDPNow model, the economy will grow at a blistering 2.2% pace in the third quarter. This rosy outlook indicates continued economic vigor. This positive yet modest growth follows the decline of 0.5% in the first quarter. Firms accelerated imports to build up inventories in advance of “liberation day” on April 2, and this timing was largely responsible for such a steep decline.
The increased net exports helped prop up the second quarter’s GDP reading of 2.4%. They provided almost five percentage points to the overall total. In fact, imports plunged by 29.8% over this period. Exports were down just 1.3%, much better than last month’s advance estimate for a 1.8% drop. Final sales to private domestic purchasers rose by 1.9%, revised up from an initial estimate of 1.2%.
Yet with all these positive indicators—thank goodness!—inflation is still perceived to be the enemy. Core personal consumption expenditures (PCE) prices, which exclude food and energy, increased by 2.5%. This morning, the headline PCE price index dropped to 2%, matching the Federal Reserve’s inflation target.
The positive news was that consumption ended up being much stronger than initially estimated. The bottom line is Americans are still spending through these tariffs and uncertainty, just not as quickly as previous years. – Heather Long
Looking ahead, it appears that GDP growth will be closer to the 1.5% range as the effects of the tariffs start to become more apparent to American consumers. Long emphasizes this trend: “Going forward, the economy is likely to stay in this slower speed mode with spending and growth around 1.5% as the tariffs become more visible to American consumers.”