Q2 U.S. GDP Growth Revised Slightly Slower

In the second estimate, real GDP grew 2.1% q/q (SAAR) in the second quarter, down from the 2.4% advance estimate, but still above most estimates of trend growth (1-3/4%-2%). The Action Economics Forecast Survey had expected no revision to real GDP growth for Q2. Slower growth in business spending on equipment was the primary factor behind the downward revision. GDP and PCE price inflation moderated even further in Q2 after the marked slowdown reported in the advance report. The first look at Q2 corporate profits showed a small overall decline with a rise in foreign profits almost offsetting a decline in domestic profits.

Private-sector domestic demand continued to be the driving force behind production in Q2, accounting for 86% of the increase in overall GDP. Real final sales to domestic purchasers were revised down to a 2.1% gain from 2.3% initially. Real personal consumption expenditures were revised up marginally to a 1.7% increase from the initially reported 1.6%. This reflected no revision to spending on durable goods and a downward revision to spending on nondurable goods that was slightly more than offset by an upward revision to spending on services. Fixed investment growth was revised down to 3.9% from 4.9%. This reflected a much stronger increase in spending on nonresidential structures and less weakness in spending on residential structures but weaker business spending on equipment and intellectual property.

Business inventories in the second estimate fell slightly in contrast to a small rise in the advance report. Consequently, the change in inventories subtracted 0.09%-point in the second estimate after having contributed 0.14%-point in the advance estimate. Also, the trade deficit widened a little more than initially estimated, increasing its subtraction from growth to -0.22%-point from -0.12%-point in the advance report. Government spending growth was revised up to 3.3% from 2.6% initially, led by a significant upward revision to spending by state and local governments to 4.7%, its fastest pace since before the pandemic.

The first look at corporate profits showed a 0.4% q/q (not annualized) decline in before-tax profits with inventory and capital consumption adjustments in Q2 following a 4.1% quarterly decline in Q1. This was the fourth consecutive quarterly decline. Domestic profits declined for the third consecutive quarter, falling 1.3% after a 4.5% drop in Q1. By contrast, foreign profits rebounded in Q2, advancing 4.4% after a 2.0% quarterly decline in Q1.

The news on inflation improved further in the second estimate. The advance report had delivered a much larger-than-expected decline in inflation as measured by both the GDP and the PCE price indexes. This was revised down even further in the second estimate. GDP price inflation, which had fallen to 2.2% from 4.1% in the advance report, was revised to 2.0%, its lowest since Q2 2020. And there has been more than falling food and energy prices at work. The rise in the GDP price index excluding food and energy prices was revised down to 2.6% in Q2 from 2.9% in the advance report and 4.8% in Q1. Similarly, PCE price inflation (the one on which the Federal Reserve focuses), which had slowed to 2.6% from 4.1% in the advance report, was revised down a notch to 2.5%.

The GDP data can be found in Haver’s USECON and USNA databases. USNA contains virtually all of the Bureau of Economic Analysis detail in the national accounts. The Action Economics consensus estimates can be found in AS1REPNA.