The US economy expanded a brisker-than-expected rate in the second quarter, the first read on Q2 GDP suggested. But the devil’s in the details.
The headline expansion was 3%, according to the BEA’s initial tally, released on Wednesday. Consensus expected 2.6%.
The rebound came courtesy of a reversal in the impact of net trade, which torpedoed the Q1 calculation.
As the figure shows, the net exports line was a near 5ppt boon to the Q2 headline. It was a 4.6ppt drag the prior quarter. (“This is your brain on drugs.” “These are your GDP tallies on MAGA.”)
The personal consumption impulse in Q2 was modest, though, and that’s putting it politely. 1.4% on that line was the weakest since Q2 of 2023 if you don’t count the first three months of this year.
Recall that as initially reported, the personal spending impulse in Q1 was a reasonably healthy 1.8%. By the third and final estimate, it was just 0.5% (see the figure below). That’s the context for Wednesday’s preliminary read for Q2.
Consensus wanted 1.5% from the consumption line on Wednesday. So, 1.4% counted as a narrow miss. “Underwhelming” is an entirely appropriate adjective. And we’re talking about the biggest part of the US economy.
Elsewhere in the release, business spending was, um, not gangbusters, let’s put it that way. Residential investment was a drag for the second straight quarter and a fourth in five. The key real final sales to private domestic purchasers metric ran at a 1.2% pace in Q2, the slowest in more than two years.
Note: The contribution to GDP in Q2 from personal spending was just 0.98ppt.
As the figure shows, that’s well below the post-“American Rescue Plan” average.
On the inflation front, the GDP price index printed 2%, the slowest in four quarters and below estimates. The core PCE readout was 2.5%, down from 3.5% in Q1’s final estimate but two-tenths warmer than expected.
All in all, I’d call this a mixed bag. The headline was obviously flattered by the exaggerated trade oscillations (which was expected), consumption and business spending were just ok (on a generous interpretation), housing’s an albatross (but we already knew that) and inflation’s not really an issue currently.
I’m not sure how best to capture that in one, succinct description, but one thing’s for sure: It’s not indicative of the superlatives Donald Trump’s fond of conjuring to describe “his” economy. On Wednesday, he called the numbers “WAY BETTER THAN EXPECTED.”
