US economic growth for the latest quarter is revised up to a solid 3% annual rate.

WASHINGTON (AP) — The U.S. economy grew last quarter at a healthy 3 percent annual pace, fueled by strong consumer spending and business investment, the government said Thursday in an update to its initial estimate.

The Commerce Department had previously estimated that the nation’s gross domestic product — the total output of goods and services — expanded at a 2.8 percent rate from April to June.

Growth in the second quarter marked a sharp acceleration from a sluggish 1.4% growth rate in the first three months of 2024.

Consumer spending, which accounts for about 70 percent of U.S. economic activity, rose at an annual rate of 2.9 percent in the last quarter. This was up from 2.3% in the government’s original estimate. Business investment expanded at a 7.5% rate, led by a 10.8% increase in equipment investment.

Thursday’s report reflected an economy that remains resilient despite continued pressure from high interest rates. The state of the economy weighs heavily on voters ahead of November’s presidential election. Many Americans remain exasperated by high prices, even as inflation has eased since hitting a four-decade high in mid-2022.

But measures of consumer sentiment by the Conference Board and the University of Michigan showed a recent uptick in confidence in the economy.

“GDP revisions show that the US economy was in good shape in mid-2024,” said Bill Adams, chief economist at Comerica Bank. “Solid growth in consumer spending propelled the economy forward in the second quarter, and rising consumer confidence in July suggests it will propel growth into the second half of the year as well.”

The latest GDP estimate for the April-June quarter included figures that showed inflation continued to ease, remaining just above the Federal Reserve’s 2 percent target. The central bank’s favorite gauge of inflation – the personal consumption expenditure index, or PCE – rose at an annual rate of 2.5% in the latest quarter, down from 3.4% in the first quarter of the year. And excluding volatile food and energy prices, so-called core PCE inflation rose at a 2.7 percent pace, down from 3.2 percent in January through March.

Both PCE inflation figures released on Thursday marked a slight improvement from the government’s first estimate.

A category of GDP that measures the underlying strength of the economy grew at a healthy annual rate of 2.9 percent, up from 2.6 percent in the first quarter. This category includes consumer spending and private investment, but excludes volatile items such as exports, inventories and government spending.

To combat rising prices, the Fed raised its benchmark interest rate 11 times in 2022 and 2023, pushing it to a 23-year high and helping to lower annual inflation from a peak of 9.1% to 2.9% from last month. The resulting much higher borrowing costs for consumers and businesses were expected to trigger a recession. However, the economy continued to grow and employers continued to hire.

The story continues

Now, with inflation hovering just above the Fed’s 2 percent target and likely to slow further, Chairman Jerome Powell has essentially declared victory over inflation. As a result, the Fed is poised to start cutting its benchmark interest rate at its next meeting in mid-September.

A sustained period of lower Fed rates would be intended to achieve a “soft landing,” whereby the central bank manages to reduce inflation, maintain a healthy labor market and avoid the onset of a recession. Lower rates on auto loans, mortgages and other forms of consumer credit would likely follow.

The central bank has recently become more concerned with supporting the labor market, which has gradually weakened, than continuing to fight inflation. The unemployment rate has risen for four consecutive months to 4.3 percent, still low by historical standards. Job openings and the pace of hiring have also declined, although they remain at relatively solid levels.

Thursday’s report was the Commerce Department’s second estimate of GDP growth in the April-June quarter. It will issue its final estimate at the end of next month.