3 signs the US economy is set to zoom past growth expectations

• The US is on pace to grow beyond expectations, thanks to a strong labor market and new economic policies.
• On Thursday, new GDP data will show just how much the US economy grew between April and June.
• "Bidenomics" policies including the Infrastructure Investment and Jobs Act could heighten GDP more than expected.

The economy has been on a roll recently, and this trend may continue when GDP numbers come out on Thursday.

With the debate over a looming recession still going strong, all eyes will be on the gross domestic product numbers for the three months ending in June — and forecasts are sunny.

Last week, Morgan Stanley made a "sizable upward revision" in its GDP forecasts, projecting 1.9% growth, after crediting President Joe Biden's economic growth initiatives with driving a surge in manufacturing and infrastructure. Plus, consumer confidence is up and inflation is slowing, while a surge in new business creation remains strong.

Forecasts from the Federal Reserve Bank of Atlanta are also optimistic at 2.4% in the second quarter. However, panelists surveyed by the Federal Reserve Bank of Philadelphia predict second-quarter growth of 1.0%—which would signal a slowdown in growth from an annual rate of 2.0% in the first quarter. Congressional Budget Office estimates released Wednesday suggest GDP will rise at a 0.4% annual rate in the second half of 2023 and will steadily improve next year.

Some believe GDP won't rise too much since consumer spending has been modest, with many Americans becoming more cautious given high prices and rising credit card debt.

Thursday's data comes as President Biden continues to aggressively promote his economic growth initiatives, commonly deemed "Bidenomics," in an attempt to increase the country's industrial strength and bring back manufacturing jobs to the US. 

"Together, we are transforming the country, not just through jobs, not just through manufacturing, but also by rebuilding our infrastructure," Biden said last week at a Philadelphia shipyard.

Investments in frastructure and manufacturing fuel growth 

Ellen Zentner, chief U.S. economist for Morgan Stanley, said in a note that the Infrastructure Investment and Jobs Act is "driving a boom in large-scale infrastructure," adding that manufacturing construction has strengthened.

The US has also been experiencing a factory boom, with construction spending on US manufacturing nearly doubling from May 2022 to May 2023. Legislation such as the CHIPS Act, intended to boost semiconductor manufacturing, and the Inflation Reduction Act have provided tax incentives and funding to promote manufacturing construction. The boom has been led mainly by construction for computer, electronic, and electrical manufacturing.

Manufacturing employment recently hit its highest level since 2008, and since Biden took office, around 800,000 manufacturing jobs were added. However, manufacturing hiring still lags behind some other sectors due in part to the manufacturing skills gap, caused by the struggle to find workers with technical and manual expertise.

New business formation is still on the rise

The US has also seen a continued boom in new business creation, according to the Economic Innovation Group. In the first two quarters of this year, applications to start a business likely to hire employees grew 7% year-over-year. This puts the country on pace to nearly match 2021's highs, the highest level in US history.

So far this year, nearly 871,000 likely employer applications were filed, making this the second largest midyear total ever—and a 36% increase over the prepandemic half-year baseline. Individuals filed nearly 2.7 million applications to start a busy first half of this year, a 52% increase from the first two quarters of 2019.

Sectors leading likely employer business applications include accommodation and food services, construction, health care and social assistance, and retail trade. This data has been strongest in the South, with significant upticks in total business applications between Mississippi and North Carolina.

And existing businesses report favorable conditions as well. According to the National Association for Business Economics' July Business Conditions Survey, respondents on the whole saw improvement in sales and profit margins at their firms over the past three months.

"Results of the July 2023 NABE Business Conditions Survey reflect an economy of rising sales and profits, as materials costs decline and stabilizing wages prove less challenging," said NABE President Julia Coronado, founder and president, MacroPolicy Perspectives LLC in a statement.

Americans are feeling better about the economy — likely due to slowing inflation

After months of a so-called "vibecession," when many Americans felt poorly about the economy even though most metrics pointed away from a recession, consumer confidence has been rising. On Tuesday, consumer confidence levels jumped to the highest level since July 2021, according to the Conference Board's monthly Consumer Confidence Index.

This uptick in consumer confidence comes as a recession seems less likely for 2023. According to the NABE survey, nearly 75% of forecasters believe there is a 50% or less chance the US would enter a recession in the next 12 months. This could signify a higher chance of a long-desired soft landing.

Additionally, many Americans have felt better about the economy due to slowing inflation. The Consumer Price Index rose by 3.0% year over year in June, down from 4.0% in May, a positive sign for Americans' wallets.

The CPI continues inching closer to the Federal Reserve's 2.0% inflation target, which it hopes to achieve partly through July's 25 basis point interest rate hike. More rate hikes are likely necessary to bring inflation numbers down further, though it's unclear how many additional hikes, if any, will occur this year.

To be sure, not every metric is pointing to blazing growth. Though still strong, the jobs market drastically slowed hiring in June, adding 209,000 nonfarm payroll jobs — almost 100,000 less than in May. Job openings also fell in June, suggesting the labor market still has a ways to go but is still growing at a sustainable rate.

Many economic indicators support strong GDP growth for the quarter and the rest of the year, which could be a good sign for big companies, new small business owners, and Americans at the grocery store.