WASHINGTON, Sept 29 — The US economy maintained a fairly solid pace of growth in the second quarter and activity appears to have accelerated this quarter, but a looming government shutdown and an ongoing strike by auto workers are dimming the outlook for the rest of 2023.
“The big news is not that nothing has changed, but that the economy remains resilient, inflation remains elevated and the Fed’s worst-case scenario, stagflation, has been avoided for now,” said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance in Charlotte, North Carolina. “Given how much the Fed has raised rates, it’s impressive that the economy is still growing at this pace.
Growth for the first quarter was raised to a 2.2 per cent rate from the previously reported 2.0 per cent pace. The economy is expanding at a pace well above what Fed officials regard as the non-inflationary growth rate of around 1.8 per cent. Since March 2022, the US central bank has raised its benchmark overnight interest rate by 525 basis points to the current 5.25 per cent-5.50 per cent range.
“Overall it now looks like there is more ‘excess saving’ currently left over for consumers than we had seen before the latest revisions, which is a favourable sign for the economy,” said Daniel Silver, an economist at JPMorgan in New York. “Upward revisions to recent data on corporate profits also are a favourable sign with respect to the durability of the expansion.”Stocks on Wall Street were trading higher. The dollar fell against a basket of currencies. US Treasury yields were mixed.
“Regardless of duration, federal employee furloughs should subtract 0.15 percentage point for each week of shutdown,” Goldman Sachs economist Alec Phillips wrote in a note. “We have estimated the indirect private sector hit at 0.05 percentage point per week, but this is likely to be smaller in a short shutdown, and larger in a protracted shutdown lasting many weeks.”
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