US second-quarter GDP far exceeds expectations, market still firmly betting on rate cut in September

According to the preliminary estimate from the U.S. Department of Commerce on Thursday, the economic activity in the United States in the second quarter was significantly stronger than expected.

The initial annualized quarterly real GDP growth rate for the second quarter in the United States was recorded at 2.8%, far exceeding the expected 2%, with the previous value at 1.40%. The initial annualized quarterly core PCE price index for the second quarter in the United States was recorded at 2.9%, surpassing the expected 2.7%, and showing a slight cooling from the previous value of 3.7%. The initial quarterly real personal consumption expenditure rate for the second quarter in the United States was recorded at 2.3%, also higher than the expected 2%, with the previous value at 1.5%.

After the data was released, the U.S. dollar index saw a short-term rise, reaching a high of 104.45. Spot gold experienced a short-term decline of $9, briefly falling below the $2370 mark. Spot silver's decline widened to 5% at one point. Non-U.S. currencies collectively retreated, with the U.S. dollar rising 100 points against the Japanese yen and the euro falling 20 points against the U.S. dollar.

The growth of the U.S. real GDP in the second quarter mainly reflected the growth in consumer spending, private inventory investment, and non-residential fixed investment.

The increase in consumer spending reflected growth in services and goods. In the service sector, the largest contributions came from healthcare, housing and utilities, and entertainment services. In terms of goods, the largest contributions came from automobiles and parts, entertainment products and vehicles, furniture and durable household equipment, as well as gasoline and other energy products. The increase in private inventory investment mainly reflected growth in wholesale trade and retail trade, partially offset by declines in mining, utilities, and construction. In non-residential fixed investment, the growth in equipment and intellectual property products was partially offset by a decrease in structural investment. Import growth was mainly driven by capital goods excluding automobiles.

According to the Wall Street Journal, in many aspects, the U.S. economy is still performing well in a high-interest-rate environment, and the pace of inflation has slowed down. However, many Americans are feeling dissatisfied with the significantly higher prices of groceries, cars, and homes compared to a few years ago. While predictions of an economic recession have faded, there are still signs of weakness in the economy, with the job market starting to slow down and the pace of employers adding jobs in the second quarter slowing compared to the first quarter. Consumers are also facing increasing resistance due to persistently high borrowing costs.

Other institutional analyses also point out that although the pace of U.S. economic growth accelerated in the second quarter compared to the first quarter, it has slowed down compared to last year. Under the heavy pressure of high interest rates, consumer spending and broader economic activities have cooled down, which also helps gradually suppress inflation. This is a positive sign for the Federal Reserve, as the Fed is trying to achieve a soft landing for the economy and may start cutting interest rates in September. However, finding a delicate balance in cooling the labor market without causing millions of people to lose their jobs is a subtle point, especially when the unemployment rate has been rising for three consecutive months.

Analysts state that despite the steady pace of economic growth in the U.S. in the second quarter, the outlook for the second half of this year remains uncertain. The labor market is slowing down, which will impact wage growth The savings rate is much lower than the pre-epidemic average level, economists estimate that most of the effects of the Fed's previous rate hikes have not yet fully materialized. State and local government revenues are also slowing, which could weaken fiscal spending. There are also concerns about potential tariff measures, if former President Trump returns to the White House in the November presidential election, companies may advance import planning to avoid the negative impact of potential tariff policies. Nevertheless, it is expected that the U.S. economy will not experience a recession this year, and monetary policy is expected to ease.

Interest rate futures are currently pricing in bets on the Fed's rate cuts starting in September, with each meeting expected to cut rates for the remainder of 2024.

Former Fed hawkish member Brad commented after the GDP data was released that the U.S. growth rate in the first half of the year was close to 2%, the Fed may begin to hint at preparing to cut rates in September. The latest economic data does not point to an economic recession, and productivity has not truly improved. The economy is slowing down, but is approaching trend growth rates, which is a soft landing