U.S. economic growth beat expectations in the second quarter, driven by consumer spending and rising inventories despite high interest rates, government data showed Thursday.
After a slow start to the year, the world’s largest economy grew at an annual rate of 2.8 percent in the April-June period, compared with 1.4 percent in the first three months, according to the Commerce Ministry.
Economists had expected growth of 1.9 percent, a reassuring sign that consumption remains strong.
President Joe Biden, in a statement, praised the strength of the economy, adding that he has “more work to do” in his final six months in the White House.
Biden, who nominated his vice president Kamala Harris to run for president after his decision to withdraw from the presidential race, added, “The vice president and I will continue to fight for America’s future.”
The Commerce Department said the growth “primarily reflected increased private inventory investment and an acceleration in consumer spending.”
“This was offset by a decline in residential fixed investment,” she added.
While sectors such as manufacturing and housing are suffering after the Federal Reserve rapidly raised interest rates in 2022 to combat high inflation, consumption has been stronger than analysts expected.
That boosted the economy even though interest rates were at their highest levels in more than two decades, making borrowing more expensive for individuals and businesses.
The labor market was among the key factors supporting consumption as wages continued to rise as businesses were reluctant to shed workers after struggling to hire during the Covid pandemic.
As inflation slows and wages continue to rise, economists say consumers’ real wage gains are becoming larger, allowing them to spend more.
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