U.S. economic activity was significantly stronger than expected in the second quarter, boosted by strong consumer spending, government spending and a significant increase in inventories, according to an initial estimate on Thursday from the Commerce Department.
Real Gross domestic Product, a measure of all goods and services produced in the April-June period, rose at an annual rate of 2.8% adjusted for seasonality and inflation. Economists polled by Dow Jones had expected growth of 2.1 percent after rising 1.4 percent in the first quarter.
Consumer spending helped boost the growth number, as did contributions from private inventory investment and nonresidential fixed investment, according to the first of three estimates the department will provide.
Personal consumption spending, the main indicator in the Bureau of Economic Analysis’ report on consumer activity, rose 2.3% for the quarter, down from a 1.5% acceleration in the first quarter. Both spending on services and goods showed steady increases for the quarter.
Inventories also contributed significantly, adding 0.82 percentage points to the overall gain. Government spending also added a headwind, rising 3.9 percent at the federal level, including a 5.2 percent increase in defense spending.
On the other hand, imports, which subtract from GDP, rose 6.9%, the biggest quarterly rise since the first quarter of 2022. Exports rose just 2%.
Stock futures moved higher after the report, while bond yields moved lower.
“The composition of growth was one of the best mixes we’ve seen in some time,” said Joseph Brusuelas, chief economist at RSM. The report “tends to support the idea that the US economy is in the midst of a productivity boom that in the medium term will raise living standards across the country through lower inflation, low employment and rising real wages.”
There was some good news on the inflation front: the personal consumption expenditures price index, a key measure for the Federal Reserve, rose 2.6% for the quarter, up from a 3.4% move in the first quarter. Excluding food and energy, core PCE prices, which the Fed focuses even more on as a long-term gauge of inflation, rose 2.9%, compared with a 3.7% increase in the previous period.
The so-called chain-weighted price index, which takes into account changes in consumer behavior, rose 2.3 percent for the quarter, below estimates of 2.6 percent.
Treasury Secretary Janet Yellen viewed the GDP report as “confirmation of the path we’re on toward steady growth and falling inflation,” in remarks Thursday morning in Rio de Janeiro.
Another key variable, final sales to private domestic buyers, which the Fed sees as a good indicator of underlying demand, accelerated to a 2.6 percent pace, the same as in the previous quarter.
But the report also said the personal savings rate continued to slow, to 3.5 percent for the quarter, down from 3.8 percent in the first quarter.
There have been signs of cracks lately in the consumer image.
A report Wednesday from the Federal Reserve Bank of Philadelphia showed credit card balances at an all-time high for data dating back to 2012. Revolving debt also hit a new high, even as banks reported tightening credit standards and reducing the creation of new cards.
However, retail sales numbers continued to rise, indicating that consumers are facing the headwinds of high interest rates and persistent inflation.
There’s also pressure on the housing market: Sales are down while home prices continue to rise, putting pressure on first-time home buyers.
Federal Reserve officials are expected to keep interest rates steady at their meeting next week, although market prices suggest the first cut in four years in September. Policymakers have been cautious about when they might start cutting interest rates, although recent comments show more willingness to start easing policy and most central bankers said they see a further hike unlikely.
In other economic news Thursday, the Labor Department reported that initial unemployment claims totaled 235,000 for the week ended July 20, down 10,000 from the previous week and right in line with the Dow Jones forecast. Continuing claims, which run back a week, fell to 1.85 million.
Also, orders for durable goods — generally big-ticket items such as aircraft, appliances and computers — unexpectedly fell 6.6% in June, compared with expectations for a 0.3% increase. However, excluding transfers, new orders rose 0.5%.
