WASHINGTON (AP) — The U.S. economy grew at a robust 3% annual rate from April to June, driven by strong consumer spending and business investment, according to the Commerce Department’s final estimate released Thursday. The figure remains unchanged from previous estimates, reflecting a sharp improvement from the 1.6% growth in the first quarter of the year.
Consumer spending, the primary engine of the U.S. economy, expanded at a 2.8% annual rate last quarter, slightly down from the initial estimate of 2.9%. Meanwhile, business investment surged, with an 8.3% annual increase, largely fueled by a 9.8% rise in equipment spending.
Inflation continued to ease during this period, with the Federal Reserve’s preferred gauge—the Personal Consumption Expenditures (PCE) index—rising at a 2.5% annual pace, down from 3.4% in the first quarter. Core PCE inflation, excluding volatile food and energy prices, grew at 2.8%, a notable drop from the 3.7% recorded earlier in the year.
Despite facing 11 interest rate hikes by the Federal Reserve over 2022 and 2023, the U.S. economy displayed impressive resilience. Inflation, which peaked at 9.1% in mid-2022, has since fallen to 2.5%, while economic growth persisted. However, the job market has shown signs of cooling, with employers adding an average of just 116,000 jobs per month from June to August—the weakest three-month average since mid-2020. Unemployment has edged up to 4.2%, from its historic low of 3.4% last year, though it remains relatively low.
Last week, the Federal Reserve cut interest rates by a significant half-point, the first such cut in over four years, signaling a shift in focus toward supporting the job market now that inflation appears to be under control.
“The economy is in fairly good shape,” said Bill Adams, chief economist at Comerica Bank, in a commentary. He noted that lower interest rates are expected to spur growth in housing, manufacturing, auto sales, and other sectors over the next year, with job growth recovering and unemployment stabilizing by 2025.
Several economic indicators remain positive. Retail spending increased last month, showing consumers’ continued willingness to buy despite lingering high prices and borrowing costs. Industrial production also rebounded, and single-family home construction saw a sharp rise compared to last year. Consumer sentiment has improved for three consecutive months, driven by perceived lower prices for items like cars, furniture, and appliances.
A key measure of economic strength, which excludes volatile categories like exports and government spending, rose at a solid 2.7% annual rate in Q2, although it was down slightly from 2.9% in the first quarter.
Despite the Federal Reserve’s confidence in controlling inflation, many Americans are still frustrated by high costs for essentials like groceries, gas, and rent. Former President Donald Trump has blamed the Biden administration for fueling inflation, while Vice President Kamala Harris has argued that Trump’s proposed tariffs on imports would further drive up prices for consumers.
The Commerce Department also made upward revisions to GDP growth from 2018 to 2023, now showing an average annual growth rate of 2.3%, up from the previously reported 2.1%. Last year’s GDP growth was revised to 2.9%, higher than the earlier estimate of 2.5%.
The government’s final GDP estimate for Q2 closes this chapter, with an initial estimate for Q3 growth set to be released on October 30. The Federal Reserve Bank of Atlanta projects Q3 growth to come in at around 2.9%.
