US GDP Q2 2023: 2.1% GDP Increase Could Avoid Fed Rate Hike

Economy and Consumer Spending

The Bureau of Economic Analysis (BEA) provided an important update as to propensity for economic growth in Gross Domestic Product, Second Quarter 2023 (Second Estimate) and Corporate Profits (Preliminary) The BEA runs our official economic stats including the imperfect GDP benchmark. You can learn more about the BEA and what they do HERE. The numbers indicate that the speed of GDP growth has declined to a point that it might be enough to avoid an interest rate hike (They are looking for trajectory trends but its complex so different factors can be confusing.)

"The increase in real GDP reflected increases in consumer spending, nonresidential fixed investment, state and local government spending, and federal government spending that were partly offset by decreases in exports, residential fixed investment, and private inventory investment. Imports, which are a subtraction in the calculation of GDP, decreased (table 2). (BEA, 2023, para 3.)

The Sweet Spot of Economic Growth:

The U.S. economy has been running fairly warm in recent times and inflation has been consuming the thoughts of a large percentage economists and bankers that alike that rely on these numbers to determine profitability potential.  Raising or lowering interest rates influences the money supply and is one of the primary tools the Fed used to influence macro economic behaviors that have a significant impact on the businesses environment. 

In general, economists crave the sweet spot in economic management where the system maintains a healthy growth rate while also maintaining the contributory functioning of the other economic pieces (New economic platforms likely create new ideal growth rates because the fundamentals the economy have changed. i.e. virtual GDP influence and the long tail creative capital of that.). The further one must manipulate the environment beyond homeostasis the more likely they will run risks (The key actions of the Fed are often more stabilization oriented.)

Federal Rate Hike:

At this point, the mild economic slowdown decreases the chances of another federal rate hike that would normally be forthcoming in situations of continuous growth. As interest rate hikes increase, borrowing costs that are passed onto the average company and consumer leading to slowing the circulation/availability of money. The cost of borrowing money is an important consideration in investment decisions as well impact the price you pay for interest on your credit cards or car loans. (We will have to wait to see what actually happens. 'How the Fed affects credit cards')

Standing back from the immediacy of the problem you can gain a wider perspective, we may realize there could be an ideal place where government spending increases economic activity that in turn generates net positives (knowing the difference between cost and investment. I typically advocate investment versus cost.), business investment rises to increase tax revenue beyond what is spent to create a spark (i.e. semi conductors will be an industry to watch as it impacts many other industries from a root level making long-tail benefits that are more difficult to calculate), increases in exports funnel more investments, labor productivity increased with technology, so on and so forth that raises the overall economy and the value of American worker and competitive value of the outputs of such production. (I call this a perpetual society that invests in itself to create verified net positives that allow for future investments.)

(You can read for more information 'How does the Federal Reserve affect inflation and employment?)

GDP and GDI:

You will also notice real gross domestic income (GDI) increased 0.5 percent in the second quarter, which was in contrast to a decrease of 1.8 percent in the first quarter. The difference between Real GDP and Real GDI is noted in a few places. (You can read about why they are sometimes different, 'The Discrepancy Between Expenditure- and Income-Side Estimates of US Output' or 'Better Measure of Output: GDP or GDI?')

Related Reading:

-Yahoo Finance has a solid article with a discussion on the S&P500 bump which could be an indication of willingness to invest as well as a discussion on employment hiring slowing. US economic growth revised down for Q2, a 'welcomed' sign for Fed

-“Weaker growth in real GDI, relative to GDP, may be an indication that tighter monetary policy is weighing on the U.S. economy,” said chief economist Gus Faucher of PNC Financial Services. U.S. economy grew at slower 2.1% pace in second quarter, new GDP figures show

-A strong analysis that included the idea that GDP and GDI are considered gross domestic output and that it is a stronger measure than each alone. Thus, economic activity increased 1.3% April-June which is up from the 0.1% from the first quarter. 

-The article also mentions projections for the 3rd quarter 2% rate to a 5.9% based on export projections.

US economic growth trimmed on inventories; retains underlying momentum

-The economy added 187,000 jobs. 'U.S. Hiring Settles Into a Lower Gear'