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U.S. GDP Growth Blows Past Expectations in Q2
July 24, 2024
The U.S. economy was considerably stronger than expected during the second quarter of the year, boosted by a strong consumer, sizable inventory buildup, and government spending.
Gross domestic product (GDP), a measure of all the goods and services produced by the economy, grew at a 2.8% annualized rate during the period between April and June, adjusted for seasonality and inflation, according to the Commerce Department. That is an acceleration from the 1.4% growth seen during the first quarter and well ahead of the 2.1% increase that economists polled by Dow Jones had expected.
Economic growth was boosted by strong consumer spending. The personal consumption expenditures (PCE), a key proxy used by the Bureau of Economic Analysis to gauge consumer activity, increased 2.3% during the quarter, up from the first quarter’s 1.5% acceleration. Spending on both goods and services saw notable increases during the quarter.
Businesses building up inventories were also a major contributor to the quarter’s growth, contributing 0.82 percentage points to the total GDP gain. The economy also got a boost from government spending, which rose 3.9% at the Federal level, including a 5.2% jump in defense spending.
On the downside, imports were a drag on GDP. Jumping 6.9% during the quarter. That is the biggest quarterly increase since Q1 of 2022. At the same time, exports grew just 2% during the quarter, indicating a growing trade deficit.
The report also contained good news on the inflation front. The PCE price index, which is the Federal Reserve’s preferred measure of inflation, increased 2.6% for the quarter. While this is still well above the Fed’s 2% target inflation rate, it marks a sizable slowdown from Q1, when the PCE price index increased by 3.7%. The so-called chain-weighted price index, which accounts for changing consumer behavior like switching brands or substituting products as prices increase, was up just 2.3% for the quarter, below the Wall Street estimate of 2.6%.
The report also contained some potentially worrying signs for the U.S. consumer. The personal savings rate continues to decline, falling to 3.5% for the quarter, down from 3.8% in Q1. A separate report from the Philadelphia Federal Reserve this week showed that credit card delinquencies have hit an all-time high in data that goes back to 2012. Revolving consumer debt balances have also reached an all-time high, even as banks are tightening credit standards and declining new debt originations.
