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Strong Q2 GDP Supports Soft Landing


2.8% real GDP growth shows economy remains on soft landing path

This week, we got our first look at Q2 real GDP growth, and it was a great sign that the economy remains on track for a soft landing. Real GDP grew at a +2.8% annual rate in Q2 (chart below, purple line) – that’s double Q1’s pace.

And the growth was broad-based:

  • Consumer spending (green bars) remained the engine of the economy, as consumers spent more on goods and services despite concerns that high interest rates are starting to weigh on consumers
  • Business investment (light blue bars) also defied the headwind from rates, as companies bought computers and vehicles, and invested in software and R&D (good for future productivity)
  • Government spending (orange bars) was boosted by state and local governments and defense spending
  • Companies rebuilt inventories (yellow bars) after running them down the previous two quarters

The one clear negative was net exports (grey bars), which faces headwinds from the strong dollar since that makes US exports relatively more expensive, and imports relatively cheaper.



The good news continued this morning with the Fed’s preferred inflation gauge (PCE inflation) slowing to 2.5% YoY – not far from the Fed’s 2% target. That’s got markets pricing 100% odds of a Fed cut in September.

Other advanced economies forecast to see low but positive GDP growth this year

GDP growth is expected to stay solid in the second half of the year, with the US forecast to grow 2.6% this year (chart below, light blue bar). How about the rest of the world?

Well… other advanced economies (dark blue bars) aren’t doing quite as well as the US (light blue bar). They’re on track to see low, but positive growth, so they’ll likely skirt recession.

One reason for the slower growth is that they generally haven’t seem the same recovery in consumer spending that the US has.

Emerging economies (green bars), though, are expected to see stronger growth than most advanced economies.

For one thing, a lot of emerging markets have been cutting rates well ahead of the advanced economies, they also tend to have faster population growth (increasing economic demand) and they have investments to make (infrastructure, etc) that are already in place in advanced economies.

Real GDP growth estimates

So, 2024 is looking to be a decent or better year for growth in most of the biggest economies in the world.

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