US economy expected to have grown but slowed, dispelling recession fears

(NEW YORK) — Fears of a recession have cast a thundercloud over the economy for many months but forecasters sun-kissed by falling inflation and a robust jobs market have grown optimistic about the U.S. averting a downturn.

Gross domestic product data to be released by the federal government on Thursday will show if and how much the economy grew over the three months ending in June, offering a fresh look at what is widely considered the most comprehensive measure of a nation’s economic health.

Economists expect the GDP to have grown at an annualized rate of 1.7% over that period. The increase will owe to robust consumer and government spending, as well as a small jump in business investment, said Mark Zandi, chief economist at Moody’s Analytics.

Such results would indicate a slowdown from the 2% annualized GDP growth recorded over the previous quarter, which itself showed a cooling from the 2.6% growth displayed in the quarter before that.

However, the anticipated finding of 1.7% annualized growth over the second quarter of 2023 would demonstrate that the economy expanded rather than shrank, dispelling concern about an imminent recession.

Many observers define a recession through the shorthand metric of two consecutive quarters of shrinking in a nation’s GDP.

The data to be released on Thursday arrives a day after the Federal Reserve raised interest rates by 0.25%, escalating its aggressive inflation fight.

Economists surveyed by Bloomberg, however, think the move constitutes the central bank’s final rate increase of an aggressive series that began in March 2022.

For more than a year, the Federal Reserve has aimed to roll back inflation through interest rate hikes that typically slow the economy and slash consumer demand. The approach, however, risks tipping the economy into a downturn.

The policy appears to have succeeded in cooling prices. Inflation has fallen significantly from a peak last summer but remains one percentage point above the Federal Reserve’s target of 2%.

Some key economic indicators, meanwhile, have sustained robust performance. A jobs report earlier this month showed that the labor market cooled, but still grew at a solid clip in June, adding 209,000 jobs.

“The U.S. economy has actually been quite resilient,” Fed Chair Jerome Powell said late last month in Sentra, Portugal, at a conference organized by the European Central Bank.

Nearly three-quarters of forecasters surveyed by the National Association for Business Economics said that the probability of the U.S. entering a recession in the next 12 months is 50% or less, the organization announced on Monday.

On Tuesday, the International Monetary Fund released fresh projections showing an improved outlook for the global and U.S. economy. The organization said it expects the U.S. economy to grow 1.8% this year, a revision upward from a previous estimate released in April.

“The global economy continues to gradually recover from the pandemic and Russia’s invasion of Ukraine, but it is not yet out of the woods,” Pierre-Olivier Gourinchas, IMF chief economist and research department director, said at a press conference on Tuesday.