US Q2 GDP revised higher amid robust consumer spending

[WASHINGTON] The US economy grew at a solid clip in the second quarter, driven by robust consumer spending and business investment related to the buildout of AI infrastructure.

Gross domestic product increased at a 2.2 per cent annualised rate, revised up from the previously estimated 1.5 per cent pace, the Commerce Department’s Bureau of Economic Analysis said in its third estimate of second-quarter GDP on Wednesday (Sep 30). Economists polled by Reuters had expected that GDP growth would be unrevised.

The economy grew at a 2.5 per cent rate in the first quarter. That was revised up from the previously reported 2.1 per cent pace.

The BEA revised GDP data going back to 2021 to reflect updated information. The growth numbers suggest the economy has so far held up in the face of headwinds from the US-Israeli war with Iran, thanks to businesses aggressively investing in AI and generous tax refunds from last year’s tax legislation underpinning consumer spending.

Consumer spending, which accounts for more than two-thirds of the economy, grew at a 3.8 per cent rate last quarter, revised up from the previously reported 3.4 per cent pace. Spending grew at a 0.7 per cent rate in January-March quarter.

But even as consumers continue to spend, household budgets are increasingly under strain from higher inflation, notably gasoline prices. A survey from the Conference Board on Tuesday showed consumer confidence diving to a near 12-1/2-year low in September.

Despite the anxiety over inflation, the vigorous pace of consumer spending appears to have continued in the third quarter, thanks to an AI-driven stock market rally as well as households tapping their savings and saving less. Business spending on equipment maintained double-digit growth.

Final sales to private domestic purchasers, which exclude trade, inventories and government spending, increased at a 4.6 per cent pace in the second quarter. That was revised up from the previously reported 4.2 per cent pace of growth. This measure of domestic demand increased at a 1.8 per cent pace in the January-March quarter, revised up from the previously reported 1.7 per cent rate.

When measured from the income side, the economy grew at a 2.6 per cent rate, revised up from the initially estimated 2.2 per cent pace, reflecting strong corporate profits. Gross domestic income increased at a 2.5 per cent pace in the January-March quarter. The average of GDP and GDI, also referred to as gross domestic output and considered a better measure of economic activity, grew at a 2.4 per cent rate last quarter. Gross domestic output was previously estimated to have increased at a 1.8 per cent rate. Output increased at a 2.5 per cent rate in the first quarter.

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The Federal Reserve this month raised interest rates for the first time in three years to tame inflation. REUTERS