The US economy grew in the second quarter at the fastest pace in nearly two years as the government revised up its previous estimate of consumer spending.
Inflation-adjusted gross domestic product, which measures the value of goods and services produced in the US, increased at a revised 3.8% annualised pace, a Bureau of Economic Analysis report showed Thursday. That was stronger than the previously reported 3.3% advance and followed an outright contraction in the first quarter.
The BEA also issued its annual update of the national economic accounts, which showed real GDP still increased at an average annual pace of 2.4% from 2019 to 2024. The revisions paint a picture of an economy that quickly rebounded from the initial shock of the pandemic and has since transitioned to period of steadier, trend growth with lingering inflation.
The latest quarterly GDP data confirm the economy rebounded in the second quarter after a monumental surge in imports at the start of the year, when companies were racing to stock up ahead of President Donald Trump’s tariffs. The third quarter is also looking solid, with recent reports illustrating resilient consumer spending and business outlays for equipment.
Before Thursday’s figures, the Federal Reserve Bank of Atlanta’s GDPNow estimate pencilled in a 3.3% rate of growth in the July-September period. However, economists are less upbeat about growth in the fourth quarter as weaker employment dims prospects for consumer spending.
Economists expect activity to only pick up somewhat in 2026, partly due to Trump’s tax law and lower interest rates, with most forecasters expecting sub-2% growth for the next few years.
Separate data for the month of August released Thursday showed orders for business equipment increased at a solid clip while the merchandise trade deficit narrowed by more than forecast. Initial applications for unemployment benefits fell last week to the lowest since mid-July.
The revisions showed the Fed’s preferred inflation metric — the personal consumption expenditures price index, excluding food and energy — rose at faster clip throughout 2024 and was also marked up in the second quarter to 2.6%. Economists expect monthly PCE data, which are due Friday, to show the metric advanced nearly 3% in August from a year ago.
That may limit the extent of Fed interest-rate cuts in the coming months. In lowering borrowing costs last week, policymakers also projected two more reductions this year, though some officials are wary given persistently high inflation.
Because swings in trade and inventories have distorted overall GDP this year, economists are paying closer attention to final sales to private domestic purchasers, a narrower metric of consumer demand and business investment. This measure was revised up a full percentage point to 2.9%.
Consumer, business spending
Consumer spending — the main growth engine of the economy — advanced at a 2.5% annualised pace. The upward revision reflected more spending on transportation services as well as financial services and insurance.
Business investment expanded at a 7.3% rate, driven by the sharpest spending on intellectual property products since 1999. Investment in data centres, which house the infrastructure for artificial intelligence, quickened to a fresh record of over US$40 billion (RM168.6 billion) on an annualised basis.
Given the sharp increase in this kind of construction in recent years, the BEA’s annual update provided separate detail on data centers, which had previously been included within a broader category of investment in office structures.
While the annual revisions incorporated newer, more complete source data, the agency said it was “unable to purchase” certain statistics related to tax returns for corporations and sole proprietorships.
The latest report includes updated figures on corporate profits, which rose 0.2% in the second quarter, much lower than initially projected. That aligns with other data which suggest companies have so far largely shielded US consumers from price hikes due to tariffs, and Fed chair Jerome Powell said last week the pass through has been slower and smaller than previously thought.
A measure of after-tax profits for non-financial firms as a share of gross value added — a proxy for margins — has tightened this year, though remains well above levels that prevailed from the 1950s to the pandemic.
Source: theedgemalaysia