The economic recovery stayed on track in the spring, as American consumers continued spending despite rising interest rates and warnings of a looming recession.
Gross domestic product, adjusted for inflation, rose at a 2.4% annual rate in the second quarter, the Commerce Department said Thursday. That was up from a 2% growth rate in the first three months of the year and far stronger than forecasters expected a few months ago.
Consumers led the way, as they have throughout the recovery from the severe but short-lived pandemic recession. Spending rose at a 1.6% rate, with much of that coming from spending on services, as consumers shelled out for vacation travel, restaurant meals and Taylor Swift tickets.
“The consumer sector is really keeping things afloat,” said Yelena Shulyatyeva, an economist at BNP Paribas.
The resilience of the economy has surprised many economists who thought that high inflation — and the Federal Reserve’s efforts to stamp it out through aggressive interest-rate increases — would lead to a recession, or at least a clear slowdown in the first half of the year. For a while, it looked as if they were going to be right: Tech companies were laying off tens of thousands of workers, the housing market was in a deep slump and a series of bank failures set up fears of a financial crisis.
Instead, layoffs were mostly contained to a handful of industries, the banking crisis did not spread and even the housing market has begun to stabilize.
“The things we were all freaked out about earlier this year all went away,” said Michael Gapen, chief US economist at Bank of America.
Inflation has also slowed significantly. That has eased pressure on the Fed to keep raising rates, leading some forecasters to question whether a recession is such a sure thing after all. Jerome Powell, the Fed chair, said Wednesday that the central bank’s staff economists no longer expected a recession to begin this year.
Still, many economists say consumers are likely to pull back their spending in the second half of the year, putting a drag on the recovery. Savings built up earlier in the pandemic are dwindling. Credit card balances are rising. And although unemployment remains low, job growth and wage growth have slowed.
“All those tailwinds and buffers that were supporting consumption are not as strong anymore,” said Blerina Uruci, chief US economist at T Rowe Price. “It feels to me like this hard landing has been delayed rather than canceled.”