The Fed keeps trying to take away the punch bowl — but the economy parties on
The Fed keeps trying to take away the punch bowl — but the economy parties on
The Federal Reserve keeps taking, but nonetheless, this economy keeps on giving.
The standard metaphor is actually that the Fed takes away the punch bowl to stop the economic party. So, I guess what I should say is that we — consumers and businesses in this economy — keep dancing on the tables and partying it up.
I’m talking about Thursday’s really-surprisingly-good Gross Domestic Product report — the first estimate for the April-to-June period from the Commerce Department.
Economists expected a downturn in economic growth from the first quarter’s 2% annual rate. Instead, growth accelerated — to 2.4%. There were some favorable details in here — consumer spending did slow, but still held up pretty well, rising more than 1.5%. Business investment and factory-building boomed, and inflation moderated.
The word “resilient” got thrown around a lot today: to describe an economy that’s bucking interest rate hikes from the Fed, and contraction in the housing sector.
Sean Snaith, director of the Institute for Economic Forecasting at the University of Central Florida, characterized the economy this way: “It seems to be thus far recession-resistant.”
So, where’s all this resilience coming from? First, business investment — up nearly 8%.
Auto and airplane factories are humming, said Paul Ashworth at Capital Economics. “A rebound in transportation equipment investment, which is all to do with easing supply shortages.”
Plus, there’s been a boom in factory-building for semiconductors and electric vehicles, said Robert Frick at Navy Federal Credit Union.
“All the Biden infrastructure stuff — Inflation Reduction Act, CHIPS Act — have started a cycle of high-tech investment, and that’s going to trickle through to equipment, hiring,” Frick said.
The other major force sustaining the economy is United States consumers.
Now, our spending did slow — growing about 1.5%, compared to more than 4% in the first quarter. And that could be a problem, said Frick — as consumers spend down their savings, and run up their credit card bills.
“Prices have gone up so much, for everything from healthcare to education to utilities. Consumers are definitely becoming guarded in their spending — no question. A lot more spending is going on at discounters,” he said.
All the economists I talked to today still expect economic growth to taper off later this year. But they agree a soft landing is definitely in the cards.
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