US 2nd Quarter GDP Revised Up to 3 Percent After Better-Than-Expected Consumer Spending

People shop at a clothing store in Washington on May 29, 2024. Madalina Vasiliu/The Epoch Times

The U.S. economy expanded better than initially reported in the second quarter, reflecting solid consumer spending levels at a time of record household debt and high borrowing costs, according to the second estimate from the Bureau of Economic Analysis released on Aug. 29.

The real gross domestic product (GDP) growth rate from April to June was 3 percent, up from last month’s preliminary estimate of 2.8 percent and the previous quarter’s expansion of 1.4 percent.

An upward revision to consumer spending was the main factor behind the second-quarter real GDP update, as personal consumption expenditures (PCE) rose by 2.9 percent and contributed 1.95 percent to the final reading. In the advance estimate, consumer spending increased by 2.3 percent and padded the GDP percentage by 1.57 percent.

The overall acceleration in real GDP was also buoyed by nonresidential fixed investment (4.6 percent), private inventory investment (3 percent), and government consumption (2.7 percent).

Imports were revised up to 7 percent, while exports edged up to 1.6 percent.

The second-quarter non-inflation-adjusted GDP soared by 5.5 percent, or $383.2 billion, to $28.65 trillion.

Inflation was mixed in the previous quarter.

The GDP price index—an inflation measurement of the prices of goods and services produced in the United States—jumped by a higher-than-expected 2.5 percent. This was down from 3.1 percent in the year’s first three months.

PCE prices ballooned at a smaller-than-expected pace of 2.5 percent. Core PCE, which doesn’t include the volatile energy and food sectors, also increased by a smaller-than-expected rate of 2.8 percent.

As for the state of the consumer, current-dollar personal income was adjusted downward to $233.6 billion, and real (inflation-adjusted) disposable personal income was unrevised at a 1 percent increase. The personal savings rate was also altered lower by 0.2 percentage points to 3.3 percent.

Corporate profits rose by 1.7 percent in the second quarter, compared with the 2.7 percent decline in the January to March span.

The GDP third estimate will be published on Sept. 26.

A Look at the Markets

Following the latest GDP data, U.S. stocks posted gains before the opening bell. The leading benchmark indexes swelled by as much as 0.7 percent.

U.S. Treasury yields were primarily green across the board, with the benchmark 10-year yield rising to 3.87 percent. The 2- and 30-year yields inched higher to 3.89 percent and 4.16 percent, respectively.

The U.S. dollar index, a gauge of the greenback against a basket of currencies, looked to rebound after a sharp downturn this month, picking up about 0.25 percent. The index is down by 0.1 percent year to date.

The Fed and the US Economy

While many recession signals have been flashing red, various estimates suggest that the United States will likely avert an economic downturn in 2024.

Looking ahead to the third quarter, the Federal Reserve Bank of Atlanta’s GDPNow model estimate suggests that the economy will expand by 2 percent. The New York Fed Staff Nowcast predicts a 1.9 percent growth rate. The St. Louis Fed Economic News Index forecasts a 1.7 percent reading.

“Looking at the latest daily and weekly data shows that retail sales are strong, jobless claims are falling, restaurant bookings are strong, air travel is strong, hotel occupancy rates are high, bank credit growth is accelerating, bankruptcy filings are trending lower, credit card spending is solid, and Broadway show attendance and box office grosses are strong,” Torsten Slok, chief economist at Apollo, said in a daily note.

“The bottom line is that there are no signs of a recession in the incoming data.”

Consumers, who have mainly been pessimistic about current economic conditions, have trimmed their downturn expectations.

The Conference Board’s Consumer Confidence Index rose in August, and the report confirmed that the perceived likelihood of a recession over the next 12 months was “well below the 2023 peak.”

With inflation stabilizing and the Fed beginning to cut interest rates, “there’s a real possibility that we could avoid a recession,” David Miller, chief investment officer and senior portfolio manager at Catalyst Funds, said.

“Looking ahead, the bigger question for next month isn’t just whether they'll cut rates by 25 basis points or so in September, but more importantly, what their actions will be afterward,” Miller said in a note. “I think this will be the key driver for the markets in the coming months—Fed policy.”

Staff economists marked down growth projections for the second half of 2024, alluding to “weaker-than-expected labor market indicators,” according to minutes from the July policy meeting.

The central bank raised the policy rate to its highest level in 23 years to a range of 5.25 percent to 5.5 percent without triggering a sharp downturn.

According to the CME FedWatch Tool, the futures market is betting that the Federal Reserve will pull the trigger on the first rate cut in the easing cycle in September. The debate among market watchers is about the size and pace of the institution’s reductions in the coming months.

Federal Reserve Chairman Jerome Powell stated in his keynote address to the Jackson Hole Economic Symposium on Aug. 23 that the institution’s actions will depend on the data.

“The time has come for policy to adjust,” Powell said. “The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.”

The next two-day Federal Open Market Committee policy meeting will occur on Sept. 17 and 18.