US: Q2 Real GDP Expanded by a Healthy 2.1%, While GDI Sees Modest Gain  

The Bureau of Economic Analysis’ second estimate of Q2-2023 real GDP was revised 0.3%-pts lower to 2.1% quarter-over-quarter (q/q, annualized).

Consumer spending advanced by 1.7% – largely unchanged from the previously reported gain of 1.6%. Spending on services was a tick higher at 2.2% but was partially offset by slightly weaker spending on goods (+0.6%).

Non-residential fixed business investment grew by 6.6% (1.5%-pts weaker than the previously reported gain of 7.7%). Structures investment was revised higher (to 11.3% from 9.7%), while both equipment (7.7% from 10.8%) and intellectual property products (2.2% from 3.9%) were softer.

Residential investment declined for the ninth consecutive quarter, falling by 3.6%.

Both imports (-7.0%) and exports (-10.6%) were relatively unchanged from the advance estimate. Overall, net trade’s impact on Q2 growth was small, shaving just 0.2%-pts from GDP.

Inventories investment was revised lower and is now estimated to have shaved 0.1%-pts from GDP (previously +0.1%-pts).

Government spending was revised higher to 3.3% (from 2.6%).

Real Gross Domestic Income rose by 0.5% in the second quarter, in contrast to a decline of 1.8% in Q1. Corporate profits were modestly lower, falling by 1.5% (annualized) or $10.6 billion after accounting for inventory valuation and capital consumption adjustments. However, this was more than offset by a solid gain in personal income (+4.2%).

• In terms of the breakdown, corporate profits were lower across the financial sector (-$47.9 billion billion), but modestly higher across the non-financial (+$17.1 billion) sector. The pullback in the former can largely be attributed to the Federal Reserve incurring further losses on its QE bond holdings as interest rates have moved higher.
• Measured as a share of nominal GDP, corporate profits currently sit at 10.5%, or 1.3%-pts below its 2019 average of 11.2%.

Key Implications

Despite the modest downward revisions, the second estimate of Q2 GDP continued to show that economic growth expanded at an above-trend pace last quarter, with all the strength concentrated within domestic demand (i.e., consumption, fixed investment, and government). The acceleration in Q2 business investment is perhaps most notable, reflecting direct and indirect forces related to federal subsidies for green technology, and the delayed post-pandemic recovery trends in the transportation sector (see Quarterly Q&A).

After having contracted in each of the two previous quarters, GDI recorded a modest gain in Q2, helping to narrow what been a historically wide gap between the two measures. The uptick was largely driven by continued gains in personal income, which are helping sustain a healthy pace of consumer spending. That momentum is expected to carry into the third quarter, where GDP growth is currently tracking 3.3%, with consumer spending also looking to advance by over 3%.