US Q2 GDP Recap: The Economy Expanded by a Robust 2.8% Rate, Significantly Surpassing Expectations

Real gross domestic product (GDP) increased at an annual rate of 2.8 percent in the second quarter of 2024, according to the "advance" estimate. Economists polled by Dow Jones anticipated a 2.1% growth rate following a 1.4% rise in the first quarter.

Bureau of Economic Analysis noted that, compared to the first quarter, the acceleration in real GDP in the second quarter primarily reflected an upturn in private inventory investment and an acceleration in consumer spending. These movements were partly offset by a downturn in residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.

Consumer spending saw an uptick, growing at a rate of 2.3% compared to the previous 1.5%, propelled by a surge in the consumption of goods, which increased by 2.5% versus a previous decrease of 2.3%. This growth in goods consumption was largely driven by motor vehicles, recreational goods and vehicles, and gasoline, even as services experienced a slowdown to 2.2% from 3.3%.

Additionally, private inventories contributed positively to growth, adding 0.82 percentage points after having a negative impact in the preceding two periods, with wholesale and retail trade industries leading the way.

Meanwhile, nonresidential investment picked up pace, growing at 5.2% compared to 4.4% in the prior quarter. This acceleration was particularly evident in equipment investment, which soared to 11.6% from 1.6%, while investment in intellectual property products moderated to 4.5% from 7.7%, and structures investment declined by 3.3%, reversing from a growth of 3.4%. Government spending also saw a more significant increase of 3.1% versus the previous 1.8%, with defense leading the charge. On the other hand, residential investment contracted by 1.4%, marking the first decrease in a year after a 16% expansion previously.

Net trade exerted a drag on growth for the second consecutive quarter as import growth, at 6.9%, outpaced export growth, which stood at 2%, compared to previous rates of 6.1% and 1.6%, respectively.

New orders for manufactured durable goods data were also released today. The number slumped 6.6% month-over-month in June 2024, after four consecutive monthly increases and missing market expectations of a 0.3% increase. Transportation equipment drove the decrease, down by 20.5%.

CME FedWatch tool shows that the probability of the Fed cutting interest rates by 25bp in September is 86.8%, and the probability of cutting interest rates by 50bp is 12.6% after the release of GDP and durable goods orders data.

Besides, the US PCE Price Index, which is set to be released on Friday, may indicate a continued decline in inflation. A GDP growth rate that has not yet cooled suggests that the current U.S. economy may once again be in a "Goldilocks" scenario.