The U.S. economy grew faster than expected in the second quarter, which marked the fourth straight quarter of rising gross domestic product (GDP).
Real GDP rose at an annual rate of 2.4% (seasonally adjusted) to $20.4 trillion in Q2 2023, the U.S. Bureau of Economic Analysis (BEA) reported in advance estimates on Thursday. Economists and Wall Street analysts had generally forecast an uptick of 2%.
The Q2 increase followed gains of 2% in the first quarter of 2023 (revised upward from 1.1% previously), 2.6% in the fourth quarter of 2022 and 3.2% in the third quarter of 2022.
Excluding declines of 0.6% in Q1 and 1.6% in Q2 of 2022, the nation has posted 10 consecutive quarters of GDP growth since economic output plunged in the thick of the COVID-19 pandemic in mid-2020.
Sequentially, GDP edged up 0.6% from the 2023 first quarter to second quarter. Q2-to-Q2 growth came in at 2.6%, according to the BEA.
Second-quarter 2023 personal consumption expenditures (PCE) grew 1.6% at an annual rate and was up 2.3% year over year to $14.42 trillion. Consumer spending edged up 0.9% from Q4 2022 to Q1 2023 and accounted for about 69.4% of overall real GDP.
The PCE gain reflected the latest U.S. retail sales reported by the U.S. Census Bureau. Retail and foodservice sales rose 1.5% annually and 0.2% month to month in June, though retail trade sales (excluding motor vehicles, parts stores, gas stations and repair shops) were up 0.5% on a 12-month basis and 0.2% sequentially.
Real GDP for food and beverages purchased for off-premises consumption—essentially, food-at-home goods—dipped 1.2% year over year to $1.023 trillion in the 2023 second quarter and virtually plateaued versus first-quarter results, based on BEA data.
That represented the third straight quarter of flattish food-at-home spending reported by the BEA. The Census Bureau reported that June grocery retail sales climbed 1.1% year over year but were down 0.7% sequentially.
The PCE price index—another measure of inflation—rose 2.6% for Q2, compared with a 4.1% uptick in Q1 and, excluding food and energy prices, was up 3.8% sequentially from a 4.9% in Q1.
The better-than-expected Q2 GDP result seemed to quell widespread concerns that a U.S. recession was in the offing. Indeed, economists’ fears of an impending recession also have calmed since the beginning of the year. A report last week from Goldman Sachs projected the likelihood of a U.S. recession in the next 12 months at 20%, down from 25% a month earlier.
Ongoing high prices for a lot of goods and services, including food and groceries, plus an unstable domestic and international economic environment have tinged the outlook for many consumers. For example, the latest Consumer Sentiment Study from consumer data specialist Numerator found that 63% of Americans feel the United States is now in recession.
However, the July Consumer Digest from 84.51° pegged shopper concern over inflation at 61%, down from 66% in January, 71% in July 2022 and the lowest level that the Kroger data science firm has seen in the past 12 months.
“While more shoppers state they are not comfortable (26%) versus being very comfortable (14%), the majority feel neutral (62%)—a claim that we’re continuing to see month over month,” 84.51° stated in the report.
This week, business think tank The Conference Board reported that its benchmark Consumer Confidence Index reached its highest level in two years.
The July 2023 index stood at 117.0 (1985=100), up from 110.1 in June. Lower inflation and a tight labor market have made consumers more upbeat, even amid rising interest rates, The Conference Board noted.
“Consumer confidence rose in July 2023 to its highest level since July 2021, reflecting pops in both current conditions and expectations,” commented Dana Peterson, chief economist for The Conference Board. “Headline confidence appears to have broken out of the sideways trend that prevailed for much of the last year. Greater confidence was evident across all age groups, and among both consumers earning incomes less than $50,000 and those making more than $100,000.”
Still, consumer worries about a potential recession have lingered. The Conference Board said 70.6% of consumers deem a recession as “somewhat” or “very likely”—up from 69.9% in June yet below the recent peak earlier this year—and the business group expects one to unfurl before the year’s end.
“The Expectations Index—based on consumers’ short-term outlook for income, business and labor market conditions—improved to 88.3 (1985=100) from 80.0 in June,” The Conference Board stated. “Importantly, Expectations climbed well above 80—the level that historically signals a recession within the next year.”