US economic growth accelerated by more than expected in the last quarter

President Joe Biden says there is 'more to do' in the world's largest economy

US economic growth exceeded expectations in the second quarter, boosted by consumer spending and inventory building. AFP

US economic growth accelerated by more than forecast in the second quarter, according to a report released on Thursday, illustrating demand is holding up under the weight of higher borrowing costs.

Gross domestic product increased at a 2.8 per cent annualised rate after rising 1.4 per cent in the previous period, the government’s initial estimate showed.

The economy’s main growth engine – personal spending – rose 2.3 per cent, also more than forecast.

A closely watched measure of underlying inflation rose 2.9 per cent, easing from the first quarter but still above forecast, the Bureau of Economic Analysis report showed.

“When I took office, we were in the midst of the worst economic crisis since the Great Depression,” President Joe Biden said after the report.

“Today's GDP report makes clear we now have the strongest economy in the world.”

“Thanks to my and Vice President Harris’s economic agenda, our economy grew a robust 2.8 per cent over the last quarter, based on strong American consumers and business investment.”

Even though the pace of growth picked up from the first quarter, the figures still represent a moderation from last year.

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Consumer spending and broader economic activity have cooled under the weight of high interest rates, which is simultaneously helping to tame inflation gradually.

That bodes well for the Federal Reserve, which is trying to pull off a soft landing for the economy and likely to start cutting interest rates as soon as September, Bloomberg reported.

However, it’ll be a fine balance to cool the labour market just enough without putting millions of people out of work, especially as unemployment has now risen for three straight months.

Treasury yields rose slightly and stock futures fluctuated after the report.

Policymakers weren’t expected to cut rates when they meet next week.

“But we have more to do,” Mr Biden said.

“Over the next six months, I will continue doing my job as President: lowering costs for hardworking families and growing our economy.”

Consumer spending was driven mostly by a rebound in durable goods like cars and furnishings as well as a more moderate advance in services outlays compared to the first quarter, according to the GDP report.

Government spending contributed more to GDP compared to the first three months of the year, boosted by defence spending. Residential investment subtracted from growth for the first time in a year as high mortgage rates kept a lid on sales activity and new construction.

Business investment grew at the fastest pace in almost a year, led by the strongest advance in equipment since the start of 2022.

A separate report on Thursday showed orders placed with US factories for business equipment, excluding aircraft and defence, increased in June by the most since early last year.

It’s a sign such spending will keep adding to growth in coming months.