US Q2 GDP buoyed by very strong consumption, revised data show
The US economy slowed by only a smidgen more than originally thought during the second quarter, revised data showed, but only thanks to the strongest showing for the American consumer in over half a decade, which was more than offset by downwards revisions to most of the other components of aggregate demand.
And slower growth lay ahead, economists said.
According to the Department of Commerce, the annualised rate of growth in US gross domestic product slowed from 3.1% in the first three months of 2019 to 2.0% over the quarter ending in June, instead of the 2.1% pace announced in its preliminary estimate.
Economists had correctly anticipated the size of that revision, but did not foresee a large upwards revision to the government's estimate for household consumption - the biggest component of aggregate demand - during the period, from 4.3% to 4.7%, which thus contributed 3.1 percentage points to the quarterly pace of growth, up from the 2.85 points initially estimated.
Net exports on the other hand turned out to be a larger drag, subtracting 0.72 points instead of the 0.65 points first penciled-in.
Residential investment was also shown to have been weaker, dropping by 2.9% and not 1.5% but still only subtracting a tenth of a percentage point off of GDP.
The contribution to the quarterly rate of growth in GDP from government spending was also marked down, from 0.85 points to 0.77.
Investment in structures and the rate of change in private inventories subtracted three and seven tenths of a percentage point from the rate of growth in GDP, respectively, which was unchanged from the contributions initially estimated in July.
Included in Thursday's report was a first estimate of companies' pre-tax profits during the period, which Commerce said grew at a quarter-on-quarter clip 5.3% - their quickest in five years.
Price pressures also picked up noticeably, with the price index for gross domestic purchases growing by 2.2% in the second quarter after rising by 0.8% over the first three months of the year, but unchanged from the government's initial calculation.
The rate of increase in the headline price deflator for personal consumption expenditures was unchanged from a preliminary estimate of 2.3%, but at the core level prices gains were now seen at 1.7% instead of 1.8%.
Looking forwards, Jonathan Millar and Michael Gapen at Barclays Research were forecasting GDP growth to slow to a 1.5% pace in the third quarter and 1.0% in the fourth quarter "as consumer spending loses momentum with fading fiscal stimulus, and effects from trade-related uncertainty and slowing global demand intensify."
"The economy was very unbalanced in Q2, with consumption contributing 3.1pp to growth while the other components contributed -1.1pp. The third quarter should be less uneven, but the outlook for capital spending is deteriorating rapidly in the face of slower earnings growth and uncertainty created by the trade war," chimed in Pantheon Macroeconomics's Ian Shepherdson.
"Overall, GDP growth averaged a respectable 2.6% in the first half of the year, but we’d be surprised to see that pace matched in the second half, given the parlous state of manufacturing and businesses’ reluctance to commit to capex in such an uncertain environment."