4 months ago • 2 mins
What’s going on here?
The US economy sped past everyone’s expectations last quarter.
What does this mean?
Just a few months ago, the US economy was bracing for a standstill, with experts predicting zero growth and an imminent recession. But now the tables have turned: the economy expanded at an annualized rate of 2.4% last quarter, outpacing both expectations and the previous quarter’s 2% growth. The real heroes of this turnaround were consumers: their spending made up over two-thirds of all economic activity in the quarter, and all that cash-flashing was probably buoyed by the period’s relatively cool inflation. But consumers weren’t the only ones spending big bucks: private investment and government spending each saw an uptick too.
Why should I care?
The bigger picture: Not a sure thing.
With inflation finally coming back down to earth, and the economy faring fine, a “soft landing” is starting to look more realistic. But some party-poopers argue we’re just hitting the snooze button on a recession, not avoiding it. After all, Thursday’s blowout data was likely spurred by government incentives in areas like chips and EVs – which could fan the flames of inflation, and might lead to more rate hikes. And let’s not forget about the everyday folks who are financing their purchases with debt: they could start to feel the pinch of those higher borrowing costs before long.
For markets: Short-term tremors.
When it comes to the likelihood of a recession, markets continue to make a bold statement with a “yield curve inversion” – with two-year government bonds paying out more than ten-year ones. That’s a sign investors see the short-term outlook as riskier than the long-term one, and the phenomenon almost always suggests a recession’s coming in the next twelve months. But it is just one indicator, mind you, and plenty of economists think it could be wrong this time around.
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