The American economy proved resilient in Q2 2024, outperforming market expectations. GDP, at annualized rates, grew by 3.0 percent, supported by an increase in consumer spending, private inventory investment, and nonresidential fixed investment (equipment and intellectual property, rather than structures).

Nonetheless, the health of the US economy has faced greater scrutiny of late. Data from July 2024’s Employment Situation report sparked the Sahm rule (triggered when the three-month average of the unemployment rate is at least half a percentage point higher than the most recent 12-month low). The US unemployment rate edged up to 4.3 percent in July 2024, growing by 0.2 percentage points since June 2024, causing the three-month average to breach the Sahm rule threshold.

The reality is that the US is not in a recession and the Sahm rule is only one tool in a box of many used to discern the condition, or future state, of the economy. And while the chance of a recession occurring has grown, the probability of a soft landing is still a reasonably likely scenario.

That is helped by reduced growth in consumer prices, which eased to 2.9 percent in July 2024. That, coupled with greater slack in the labor force, has increased the likelihood that the Federal Reserve will adjust interest rates sooner rather than later.

Investment channels should open and spur on growth despite election uncertainty, geopolitical concerns and financial volatility. Forecasts are aligned to that, with the average of key institutions’ real GDP expectations suggesting GDP growth could hit 2.3 percent this year. This may ease to 1.7 percent in 2025 before recovering slightly by 2.1 percent in 2026.