United States Economic Forecast

The economy expanded a downwardly revised 2.1% in Q2 in quarter-on-quarter annualized terms (previously reported: +2.4%). This was due to a softer expansion in fixed investment than previously estimated, while growth in private and government spending was revised up. Turning to Q3, another robust GDP outturn is expected. Available data is positive: Retail sales and industrial production saw strong growth in July–August, while consumer spending on goods and services was robust in July. That said, a slowdown is on the cards for Q4. Student loan payments are due to resume from 1 October, which will dampen consumer spending, while the trickle-through effect of past interest rate hikes will also hit economic activity. Moreover, there is a high likelihood of a government shutdown in October due to disagreement in Congress over the 2024 budget, which would weigh on public spending.

Inflation came in at 3.7% in August, up from July’s 3.2%. The reading was slightly above market expectations of 3.6% and well above the Federal Reserve’s 2.0% target. A far smaller annual drop in energy prices led the acceleration in inflation. Inflation is expected to average slightly above 3.0% in H2, propped up by notably higher oil prices in H2 relative to H1.