3 signs US economy poised to exceed growth expectations
3 signs US economy poised to exceed growth expectations
The US economy is set to surpass expectations, propelled by a robust labor market and new economic policies. On Thursday, the release of the Gross Domestic Product (GDP) data for the second quarter will reveal the extent of the country’s economic growth between April and June. These numbers have been highly anticipated amid the ongoing debate about the possibility of a recession, and forecasts suggest a positive outcome.
Recently, Morgan Stanley revised its GDP forecasts, projecting a 1.9% growth rate for the second quarter. The bank attributed this increase to President Joe Biden’s economic growth initiatives, which have stimulated manufacturing and infrastructure development. The surge in new business creation, combined with rising consumer confidence and slowing inflation, has further contributed to the positive outlook.
The Federal Reserve Bank of Atlanta also holds an optimistic view, predicting a 2.4% growth rate for the second quarter. However, panelists surveyed by the Federal Reserve Bank of Philadelphia anticipate a lower growth rate of 1.0%. Despite these varying estimates, the Congressional Budget Office released projections indicating a steady improvement in GDP throughout next year.
Some skeptics argue that modest consumer spending, driven by concerns over high prices and mounting credit card debt, may suppress GDP growth. Nonetheless, President Biden continues to promote his economic growth initiatives, collectively known as “Bidenomics,” with the aim of strengthening the country’s industrial base and bringing manufacturing jobs back to the US.
Investments in infrastructure and manufacturing have played a significant role in driving economic growth. The passage of the Infrastructure Investment and Jobs Act has sparked a boom in large-scale infrastructure projects, leading to strengthened manufacturing construction. Notably, spending on manufacturing in the US has almost doubled from May 2022 to May 2023.
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Legislation such as the CHIPS Act, designed to bolster semiconductor manufacturing, and the Inflation Reduction Act, providing tax incentives and funding for manufacturing construction, have also contributed to this upswing. However, the manufacturing sector still faces challenges in hiring due to a skills gap, particularly in technical and manual expertise.
Another area of growth is new business formation. The Economic Innovation Group reports a continued surge in applications for businesses likely to hire employees, with a 7% year-over-year increase in the first two quarters of this year. This trend puts the US on track to match the record levels achieved in 2021. The most notable growth in likely employer business applications has been observed in sectors such as accommodation and food services, construction, healthcare and social assistance, and retail trade.
Furthermore, existing businesses have reported favorable conditions, as indicated by the National Association for Business Economics’ July Business Conditions Survey. Respondents highlighted improvements in sales and profit margins over the past three months, signaling overall economic progress.
Amidst these positive developments, consumer confidence levels have also risen. The Conference Board’s monthly Consumer Confidence Index recorded its highest level since July 2021. This shift in sentiment comes as the likelihood of a recession in 2023 diminishes. According to the NABE survey, approximately 75% of forecasters believe there is a 50% or lower chance of a recession in the next 12 months, suggesting the possibility of a long-desired soft landing.
Slowing inflation has played a part in improving Americans’ perception of the economy. In June, the Consumer Price Index rose by 3.0% year-over-year, down from 4.0% in May. This positive sign indicates that Americans’ wallets are under less strain. While the Federal Reserve aims to achieve its 2.0% inflation target, the specific number of interest rate hikes required and the timing of these hikes remain uncertain.
It is important to note that not all indicators point to blazing growth. In June, hiring in the job market significantly slowed, adding 209,000 nonfarm payroll jobs, nearly 100,000 less than in May. Moreover, job openings declined, revealing that the labor market still has room for improvement, despite maintaining sustainable growth.
Overall, many economic indicators support the expectation of strong GDP growth for the second quarter and the remainder of the year. This positive outlook bodes well for large corporations, new small businesses, and everyday consumers. As the US economy continues to flourish, there is hope for sustained growth and prosperity.
