The U.S. economy grew more slowly in the second quarter than previously estimated — a good sign the Federal Reserve is trying to curb demand to curb price increases.
Gross domestic product, a broad measure of economic output, rose at an annualized rate of 2.1% in the second quarter, according to the Commerce Department’s second estimate released Wednesday morning. This is a slightly slower pace than the 2.4% initially estimated by the department.
Compared to the initial estimate, the second estimate factored in higher consumer spending, government spending and exports. Meanwhile, business investment and inventories were revised lower. Business investment – referred to as non-residential fixed investment – was revised to a growth rate of 6.1%, compared to a rate of 7.7% in the first estimate. Residential fixed investment, reflecting conditions in the US housing market, was less of a drag on growth than previously estimated.
Economic growth in the second quarter was largely broad-based, but there were some signs of weakening demand for goods purchases and imports. Consumer spending, which accounts for about 70% of economic output, was slightly revised higher in the second estimate.
Economists widely expect the summer season to be strong, with Americans spending more on travel, dining and other personal experiences. In July, the movie “Barbie” became a huge hit and Taylor Swift sold out major theaters across America, boosting retail spending. The Commerce Department releases July figures on consumer spending, which includes retail sales, on Thursday.
The U.S. economy performed well during the summer months, but that remarkable strength kept some Fed officials on edge when they discussed monetary policy in July. The central bank has decided to raise interest rates by a quarter point to the highest level in 22 years.
Federal Reserve Chairman Jerome Powell said last week that if the economy doesn’t slow, more rate hikes will follow.
“Further evidence of sustained above-average growth could put further upside in inflation at risk and warrant further tightening of monetary policy,” Powell said at the Kansas City Fed’s annual economic conference.
The Atlanta Fed now estimates that GDP growth will pick up sharply in the third quarter to an annual rate of 5.9%.
This story is developing and will be updated.