The stock market turbulence in early August raised fears that a recession could occur in the United States. A slowdown in economic momentum is undoubtedly evident. However, there are currently hardly any signs of a recession.
The US economy expanded surprisingly strongly in the second quarter of 2024, by 0.7 percent compared to the previous quarter (annualized 3.0 percent). Compared to the first quarter, where GDP increased only moderately, the economy picked up momentum again. The growth at the beginning of summer was still supported by private consumption, which increased by 0.7 percent. Business investments also increased significantly by 1.1 percent. The recovery in residential construction investments that began in the second half of last year did not continue in the second quarter. Due to a still-weak global economy, foreign trade provided only limited stimulus for the US economy: exports grew much less than imports.
The US economy is expected to continue growing in the current third quarter of 2024, although the growth rate will likely slow down. Private consumption is expected to continue supporting the economy, as retail sales developed robustly in July. However, the labor market situation has worsened slightly; fewer new jobs are being created, and the unemployment rate has slowly risen to 4.2 percent over the past few months.
The US economy is expected to grow only moderately in the coming quarters. Private consumption will provide less stimulus to the economy due to a somewhat less favorable labor market situation and slower wage growth. Business investments, which were boosted last year by government support programs for renewable energy and semiconductor production, are unlikely to continue growing. Gradually declining interest rates, especially next year, should improve financing conditions and encourage companies to invest more. Residential construction investments are also expected to increase again, particularly in 2025 and 2026.
No new impulses for the US economy are expected from fiscal policy before the presidential and congressional elections in November. These elections are associated with high uncertainties regarding future US economic policy.
Monetary policy has become rapidly more restrictive since spring 2022, likely contributing significantly to the gradual decline in high inflation rates last year. Since the beginning of the year, inflation rates initially remained well above the central bank’s two percent target, but they gradually decreased in the summer. Compared to the previous year, inflation in August was still at 2.5 percent. Core inflation, excluding energy and food prices, rose by 3.2 percent compared to August 2023. Against this backdrop, the central bank is expected to lower its key interest rates for the first time in September, with two or three more rate cuts anticipated by the end of the year.
Overall, we expect the US economy to grow by 2.6 percent this year, similar to international organizations’ projections. Further expansion of the US economy is expected in 2025, though growth rates will likely be somewhat lower at 1.7 percent, respectively. This is slightly less than international organizations expected in early summer. Inflation is expected to fall to about 2 percent in 2025.
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