Recession? What Recession? U.S. Q2 GDP Surges To 2.8%, Shattering Expectations
AInvestThursday, Jul 25, 2024 9:08 am ET
2min read

Just now, the The Bureau of Economic Analysis announced its Q2 GDP data: In Q2, the U.S. actual GDP annualized quarter-on-quarter preliminary value was 2.8%, far exceeding the expected 2.00%, and more than doubling the previous value of 1.40%.

Consumer spending helped to push the growth number higher, and contributions from private inventory investment and nonresidential fixed investment also played a role.

Personal consumption expenditures, the main proxy in the Bureau of Economic Analysis report for measuring consumer activity, grew by 2.3% this quarter, up from the 1.5% increase in the first quarter. Both service and goods spending achieved robust growth this quarter. Within consumer spending, data showed that the growth in service spending was mainly concentrated in healthcare, housing and utilities, and recreational services. Americans also spent on goods, with auto parts, recreational equipment, household furnishings, and gasoline being the top spending categories.

A fact that helped to drive the increase in spending is that Americans' personal income increased by $237.6 billion in the second quarter, up about 1% from the first three months of the year. Disposable income, adjusted for inflation, grew by 1%, slightly lower than the 1.3% increase in the first quarter.

However, even as incomes increased, Americans set aside a smaller share of their money for the future. The personal saving rate, which the bureau compares savings to disposable personal income, was 3.5% in the second quarter of 2024. This is a slight pullback from the 3.8% rate measured in the first quarter of 2024.

A strong economy is a good sign for the average consumer, but the higher-than-expected growth in the second quarter may disrupt market expectations for the Federal Reserve to cut interest rates at the September meeting of its policy-making committee. The central bank has been trying to use higher interest rates to dampen demand and control higher inflation. Although price pressures have eased in recent months, Federal Reserve officials continue to reiterate that they will let the data determine when it is appropriate to lower rates.

As of now, the probability of the Federal Reserve's first rate cut in September on FedWatch has dropped to about 84%.

However, on the inflation front, it may offset some of the market's concerns in this area: Along with the GDP, the Q2 core PCE price index, one of the Federal Reserve's long-term inflation indicators, rose by 2.9% in the second quarter. Although it exceeded market expectations, it was significantly lower than the 3.7% in the first quarter.

"The data today will reinforce the notion that the Fed has the benefit of time," wrote Neil Dutta, head of economic research at Renaissance Macro, in a note following Thursday's release. "In the Fed's mind, there is no need to rush with private domestic demand growing steadily over the second quarter. July remains a set up meeting for September."

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