US business investment rose by 7.7% in the second quarter, as firms poured money into buildings and equipment as part of their expansion
The latest US gross domestic product data surprised economists, increasing by 2.4% in the second quarter of 2023. This was far above the 1.8% increase forecast by economists, as well as the 2% growth reported in the first quarter, according to a new report from the Bureau of Economic Analysis.
Economic growth was strong, in particular, because businesses continued to invest in buildings and equipment that will allow them to manufacture more goods and offer more services. This swell of investment in operations was, in part, driven by corporations trying to front-run the federal government spending that’s being funneled to various parts of the US economy.
The Inflation Reduction Act, CHIPs Act, and Bipartisan Infrastructure Law, the Biden administration’s key legislative achievements, are lending confidence to business leaders. In a way, their influence has been greater than that of the Federal Reserve’s cycle of rate hikes, which has made borrowing more expensive for companies.
Meanwhile, the US’s nominal GDP—which is growth unadjusted for inflation—continues to fall, showing that inflation is in steady retreat. That is good news for Fed officials, who have been looking to bring down inflation without crashing the economy. In its most recent forecasts, the Fed staff said they are no longer expecting a recession in the US.
Weak consumer spending and residential investment kept second-quarter GDP from being higher than it could have been. Both of these measures are bound to strengthen in the second quarter, according to Neil Dutta, head of Renaissance Macro Research, a brokerage firm.
New home sales swelled in the first half of this year, which portends future spikes in residential investment. Car sales are also increasing, as consumers see their inflation-adjusted wages rise thanks to a strong labor market and a decline in inflation.
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