The economy slowed in the second quarter, but not as much as anticipated, as a surge in consumer spending provided a backstop for growth.
The advance estimate for GDP revealed that the U.S. economy grew at a 2.1% quarter-over-quarter pace in the second quarter, surpassing the consensus expectation of 1.8%. Consumer spending on durable goods in particular was outstanding, growing by nearly 13% annualized.
The strongest pace of consumer spending growth since the fourth quarter of 2017 strongly suggests that despite some ominous signs on the economy, consumers remain surprisingly hardy, supported by constructive labor market conditions.
Even so, the consumer story isn’t universally rosy, as the housing sector in particular continues to soften. Residential investment slowed for the sixth consecutive quarter, contracting by 1.5%. Still, average home prices haven’t moved meaningfully in the past year and sales volume improved in June, providing some reason for optimism that better days may lie ahead.
Businesses also cut back during the quarter, particularly in their inventories. After providing a sizable boost to headline growth in recent quarters, declining stocks trimmed nearly 0.9% from headline growth in Q2.
Also providing a temporary boost to growth in Q1 was net exports. Unsurprisingly, that also reversed last quarter, as a decline in exports and flat imports chewed into growth. Ongoing uncertainty around tariffs and trade policy have led to some choppiness in the movement goods in and out of the country as businesses try to mitigate higher taxes and potential supply chain disruptions.
Even in the face of a variety of sources of uncertainty and broad indications that the economy slowed in recent months, the first look at Q2 growth holds more positives than negatives. Certainly, weaker business investment shouldn’t be overlooked, but the strength of the consumer sector also shouldn’t be dismissed.
Despite it all, the economy continues to expand at a solid pace, predominantly thanks to a resilient consumer sector carrying the load.
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