The U.S. economy expanded at a surprising 3% annual pace from April through June, bouncing back at least temporarily from a first-quarter drop that reflected disruptions from President Donald Trump’s trade wars.
The bounceback was expected but its strength was a surprise: Economists had forecast 2% growth from April through June.
From April through June, a drop in imports — the biggest since the COVID-19 outbreak — added more than 5 percentage points to growth. Consumer spending registered lackluster growth of 1.4%, though it was an improvement over the first quarter’s 0.5%.
Private investment fell at a 15.6% annual pace, biggest drop since COVID-19 slammed the economy. A drop in inventories — as businesses worked down goods they’d stockpiled in the first quarter — shaved 3.2 percentage points off second-quarter growth.
Wednesday’s GDP report showed inflationary pressure easing in the second quarter.
Consumer spending rose at a 2.5% pace, up from 0.6% in the first quarter and well above the 1.6% the government previously estimated. Spending on services advanced at a 2.6% annual pace, more than double the government’s previous estimate of 1.2%.
“The U.S. consumer remained a lot stronger than many thought, even in the midst of a stock market sell-off and a lot of trade uncertainty,” Heather Long, chief economist at Navy Federal Credit Union, posted on social media.
A category within the GDP data that measures the economy’s underlying strength came in stronger than previously reported as well, growing 2.9% from April-June, up from 1.9% in the first quarter and in the government’s previous estimate. This category includes consumer spending and private investment, but excludes volatile items like exports, inventories and government spending.
Hmm…”a dramatic upgrade from its previous estimate.” I’m sure there’s nothing at all shady about that - all perfectly legitimate. Nothing but good to see here. Move along.
Makes one wonder if that is why the market is selling off today. A strong economy certainly reduces the need for a rate cut - and I see the odds of such decreased modestly this morning. Odds of a third rate cut dropped by 10%.
Are consumers spending more because they are buying more or because what they are buying is costing more. The first could be positive; the second is negative.