Washington (United States) (AFP) – The United States on Wednesday estimated stronger second-quarter GDP growth than previously reported, with inflation remaining steady and private payrolls increasing more than expected. The US Commerce Department revised upwards its estimate for Q2 GDP growth in the world’s largest economy by 0.7 percentage points to 2.2 percent. “The contributors to the increase in real GDP in the second quarter were consumer spending, investment, and exports. Imports, which are a subtraction in the calculation of GDP, increased,” the Bureau of Economic Analysis said in a statement.
The new data will come as a boost to US President Donald Trump as his Republican Party heads into key midterm elections in November, with the state of the economy a major issue for voters. Analysts said much of the upward revision came from sectors exposed to the Artificial Intelligence (AI) technology boom. “The annual revisions show AI contributed more to growth and less to inflation in recent years than previously thought,” said Michael Pearce, chief US economist at Oxford Economics. The BEA also revised upwards its estimate of GDP growth in the first quarter of this year by 0.4 percentage points to 2.5 percent. That change was primarily driven by upward revisions to consumer spending and services exports, the department said.
– Inflation steady –
In a separate release, the BEA said the US Federal Reserve’s preferred inflation gauge stood at 3.4 percent year-on-year in August, unchanged from the month before after a revision to the July data. US households and businesses have been battered by years of high prices since the pandemic, with the Fed missing its long-term two-percent target for inflation since early 2021. Earlier this month, the Fed raised interest rates for the first time in three years to combat the inflation. The Personal Consumption Expenditures (PCE) price index, the Fed’s targeted gauge, covers a broader range of household spending than the other benchmark metric, the Consumer Price Index (CPI).
US inflation has been stoked by some of Trump’s policies, including his imposition of widespread tariffs. His launching of the Iran war has sent global energy prices skyrocketing, with US consumers paying an average of 50 percent more at the pump. Core PCE inflation, which strips out volatile energy and food prices, came in at 3.0 percent year-over-year. Markets are closely watching inflation data to gauge the Fed’s next move. On Tuesday, an influential US central banker said there was no “urgency” to raise rates again, even as he indicated one more rate hike could be needed before the end of the year.
Wednesday’s revisions to PCE data were due to planned methodological changes, including to how the BEA calculates prices for computer-related products, portfolio management, and legal services. Bernard Yaros, also of Oxford Economics, said the new PCE data was unlikely to sway the Fed from its path of monetary policy tightening, especially given upside risks to energy prices from the Iran war. “Core inflation is still hovering well above target, and risks are firmly stacked to the upside because of the sharp rise in refined petroleum product prices in recent months,” he said.
– Private payrolls bounce back –
The US labor market has been largely stable this year, allowing the Fed to concentrate on the inflation side of its dual mandate. On Wednesday, payroll firm ADP reported that US private sector hiring had bounced back strongly in September, after registering its slowest pace this year the month before. Private sector job growth came in at 90,000 last month, up from 38,000 the month before and well above market expectations. “It’s a strong report,” said Nela Richardson, ADP’s chief economist. “After a three-month slowdown, job creation rebounded and pay growth remained solid.”
ADP’s data is closely monitored ahead of official employment numbers due Friday, although the reports can diverge. Analyst Matthew Martin said ADP’s data underscored “the strength of the labor market.” It “will bolster market expectations for firmer monetary policy from the Federal Reserve as it seeks to ensure inflation is tamped out,” he added.
© 2024 AFP
