The U.S. economy showed a significant uptick in the second quarter, with the gross domestic product expanding at a seasonally adjusted annual rate of 2.8%, according to the Commerce Department. This growth was driven by increased consumer and business spending, which helped offset declines in housing construction and a widening trade gap.
Consumer spending, which accounts for about 70% of economic activity, rose by 2.3% annualized in the second quarter, reflecting strong job and wage gains that have supported consumer confidence. However, concerns are emerging as high borrowing costs are starting to impact both households and businesses.
Americans are spending more of their paychecks, with the savings rate dropping to 3.8% of monthly income, well below pre-pandemic levels. This has left many low and middle-income households with limited financial reserves, leading to record-high credit card debt and elevated delinquencies.
Looking ahead, economists are forecasting that the economy will grow at a slower pace of less than 2% annualized in the second half of the year. Many are calling for the Federal Reserve to lower its key interest rate, currently at a 23-year high of about 5.3%, in an effort to combat inflation.
While inflation has moderated from its peak in 2022, concerns remain about the potential for a recession if action is not taken soon. Most experts anticipate that the Fed will begin reducing its benchmark rate in September, although the strong 2.8% GDP growth in the second quarter may give policymakers pause in the short term.
