U.S. Economy Expands at 3% Rate, Thanks to Resilient Consumers
This is an upward revision, reflecting stronger consumer spending on goods and services—particularly in healthcare, housing and utilities, and recreation.
The U.S. economy grew at a slightly stronger pace in the second quarter than initially reported, reflecting an upward revision to consumer spending that more than offset weaker activity in other categories.
Gross domestic product (GDP) rose at a 3 percent annualized rate during the April-to-June period, up from the previous estimate of 2.8 percent, according to Bureau of Economic Analysis (BEA) figures published Thursday. The economy’s main growth engine—personal spending—advanced 2.9 percent, versus the prior estimate of 2.3 percent.
A separate government report out Thursday showed initial applications for unemployment benefits were little changed at 231,000. Treasury yields rose and S&P 500 index futures remained higher while the dollar strengthened.
The other main gauge of economic activity—gross domestic income (GDI)—rose a more moderate 1.3 percent in the government’s first estimate for the period, matching the first-quarter gain. Whereas GDP measures spending on goods and services, GDI measures income generated and costs incurred from producing those same goods and services. The average of the two growth measures was 2.1 percent.
| Metric | Revision | First Reading |
|---|---|---|
| GDP | +3.0% | +2.8% |
| Consumer spending | +2.9% | +2.3% |
| Non-residential fixed investment | +4.6% | +5.2% |
| Residential investment | -2.0% | -1.4% |
| GDI | +1.3% | NA |
Growth has cooled so far this year after accelerating the second half of 2023. Forecasters see further moderation for the remainder of 2024, as high borrowing costs continue to filter through the economy. At the same time, the Federal Reserve is set to begin lowering interest rates next month as inflation slows, which may provide some relief to sectors heavily impacted by borrowing costs like housing and manufacturing.
The upward revision to consumer spending reflects stronger advances in purchases of goods and services. The leading contributors were increased outlays for healthcare, housing and utilities, and recreation.
At the same time, the BEA revised down business spending, inventories, net exports, residential investment, and government outlays.
The GDI data includes figures on corporate profits. In the second quarter, adjusted pretax profits rose 1.7 percent. After-tax profits as a share of gross value added for non-financial corporations, a measure of aggregate profit margins, edged up to 15.4 percent in the second quarter, from 15.2 precent in the prior three-month period.
The discussion around corporate profits has taken center stage on the campaign trail, with Vice President Kamala Harris, the Democratic presidential candidate, pitching sweeping new household measures at the expense of margins. She is seeking large tax increases on corporations and high-income individuals, while former President Donald Trump has pledged fresh tax cuts to bolster the economy.
On the inflation front, the Fed’s preferred metric—the personal consumption expenditures (PCE) price index—rose at a 2.5 percent annualized rate in the second quarter, down slightly from the initial projection. Excluding food and energy, the core PCE gauge climbed 2.8 percent, versus 2.9 percent in the previous estimate.
Economists are looking ahead to the Friday release of monthly PCE data for July. It’s currently projected to show the metric, excluding food and energy, rose 2.7 percent from the same month last year.
Fed officials have recently indicated they’re more focused on the labor market side of their dual mandate now that inflation has largely receded. Chair Jerome Powell said last week that central bankers don’t “seek or welcome further cooling in labor market conditions.”
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