US GDP growth in second quarter revised down to 2.1%

WASHINGTON: Economic growth in the United States was weaker than first estimated for the April to June period, the Commerce Department said Wednesday, noting downward revisions in business investment. GDP growth in the world’s biggest economy came in at 2.1 percent for the second quarter, down from the initial estimate of 2.4 percent released in July. The updated growth figure is still slightly above the pace in the first three months of 2023, but could be encouraging to policymakers who have been seeking to cool the economy.

Economists have been warning of a possible downturn as the US central bank rapidly lifted interest rates to tamp down demand and lower inflation. But the economy has proven more resilient than anticipated, boosting hopes of a “soft landing” where inflation comes down without triggering a recession. “The updated estimates primarily reflected downward revisions to private inventory investment and nonresidential fixed investment,” the Commerce Department said. This was “partly offset by an upward revision to state and local government spending.”

While the acceleration in GDP growth from the first to second quarter this year was mainly driven by investment shifts, official data noted a downturn in exports and slowdown in consumer spending as well. Meanwhile, private sector hiring in the United States slowed more than expected in August, according to data from payroll firm ADP on Wednesday, as a boom from the leisure and hospitality sectors faded. This comes as both segments, which are key drivers of summer hiring, slow into the later part of the year while policymakers keep a close eye on labor market strength as they weigh further interest rate decisions.

Job growth came in at 177,000 this month, sharply below July’s 371,000 figure which was revised upwards, said ADP in its latest report. “This month’s numbers are consistent with the pace of job creation before the pandemic,” said ADP chief economist Nela Richardson. “After two years of exceptional gains tied to the recovery, we’re moving toward more sustainable growth in pay and employment,” she added in a statement. Job growth “slowed notably last month, driven heavily by leisure and hospitality,” according to the ADP report, as job gains by hotels and restaurants, among others, dropped to 30,000 following months of strong hiring.

Wage gains continued easing as well. Those who stayed in their jobs saw their pay increase 5.9 percent from a year ago, the slowest rate since October 2021. For workers who changed jobs, pay growth decelerated to 9.5 percent. The labor market has been stronger than anticipated as the central bank rapidly hiked rates to cool demand, most recently bringing them to the highest level in 22 years.

“I think the lagged effects of restrictive monetary policy are finally appearing in the labor market data,” Rubeela Farooqi of High Frequency Economics told AFP. “We anticipate ongoing cooling in conditions although in the near term, the labor market will likely remain strong,” she added. Looking ahead, analysts are keeping a close watch on official employment figures due Friday. – AFP

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