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United States GDP Q2 2023

United States: GDP picks up in the second quarter

GDP growth sped up to 2.4% in seasonally adjusted annualized rate terms (SAAR) in the second quarter, from 2.0% in the first quarter and overshooting market expectations. On an annual basis, economic growth accelerated to 2.6% in Q2, from the previous period’s 1.8% expansion.

Household spending growth waned to 1.6% SAAR in Q2 from a 4.2% expansion in Q1, on a sharp slowdown in goods consumption. In contrast, spending on services eased more moderately. Public spending, meanwhile, expanded 2.6% (Q1: +5.0% SAAR). Fixed investment bounced back, growing 4.9% in Q2, contrasting the 0.4% decrease in the prior quarter. While residential investment continued to decline amid high interest rates, equipment investment surged. Factory construction by manufacturing firms, who are reshoring production thanks to government subsidies, also underpinned investment.

Exports of goods and services contracted 10.8% in Q2, marking the worst reading since Q2 2020 (Q1: +7.8% SAAR) and driven by soft overseas goods demand. In addition, imports of goods and services deteriorated, contracting 7.8% in Q2 (Q1: +2.0% SAAR).

The latest data shows that the U.S. economy remains resilient despite 525 basis points of rate hikes since early 2022. Looking ahead, the Consensus is for the economy to avoid recession, but still to slow in H2 on the back of past rate hikes and softer external demand.

On the outlook, United Overseas Bank’s Alvin Liew said:

“While we continue to factor in a downward shift in US growth trajectory, we are no longer factoring an outright US GDP contraction and instead we are projecting a US growth slowdown in 2H 2023 (amounting to a soft landing). We still expect the lagged effects of US monetary policy tightening and tighter financial/credit conditions to slow the US economy but we are shifting our 2023 US GDP growth forecast higher to 1.2%.”

Nomura analysts are more pessimistic:

“We continue to expect the US to enter a recession in 2023, but now forecast a later downturn, beginning in Q4 (versus our previous expectation of Q3). Business investment is likely to be the catalyst for a slowdown. [That said,] the risk of a soft landing has risen. Even if business investment deteriorates as we expect, rolling sectoral recessions may not lead to a recession for the entire economy if labor markets/personal consumption provide more cushion than we expect.”

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