Consumer Demand, Government Spending Fuel 3 Percent GDP Growth in 2nd Quarter: 3rd Estimate

Sixteen of 22 industry groups added to the real GDP increase, the Bureau of Economic Analysis said.

A man carries a shopping bag along a street in Manhattan, New York City, on Feb. 14, 2023. Spencer Platt/Getty Images

The U.S. economy expanded steadily in the second quarter, fueled by strong consumer demand and upward revisions to federal government spending and private inventory investment.

Economic conditions remained intact despite restrictive Federal Reserve policy and above-trend inflation.

According to the third estimate from the Bureau of Economic Analysis (BEA), the real GDP growth rate was 3 percent in the second quarter.

This was up from the 1.6 percent reading in the first quarter, revised from the initial report of 1.4 percent.

Economists had projected a growth rate of 2.8 percent for the second quarter.

The BEA said 16 of 22 industry groups added to the second-quarter real GDP increase.

Real (inflation-adjusted) consumer spending surged by 2.8 percent and contributed to nearly all registered growth from April to June. Demand for goods and services climbed by 2.8 percent and 2.7 percent, respectively.

Government consumption swelled by 3.1 percent, up from 2.7 percent in the second estimate. This contributed more than one-quarter (26 percent) to the final reading.

Exports rose by 1 percent, while imports advanced by 7.6 percent last quarter. Private inventory investment and nonresidential fixed investment were adjusted higher.

The GDP price index—a gauge of inflation in the prices of goods and services produced in the United States—rose by 2.5 percent, down from 3.1 percent in the first three months of 2024. This came in slightly below the 2.3 percent.

Additionally, personal consumption expenditure (PCE) prices—a measurement of prices consumers pay for goods and services—jumped by 2.5 percent, down from 3.4 percent. Core PCE, which removes the volatile energy and food components, increased by 2.8 percent, down from 3.7 percent.

The personal saving rate fell to 5.2 percent in the second quarter from 5.4 percent. Real disposable income jumped by 2.4 percent, an upward revision of 1.4 percentage points.

The final GDP estimate for the second quarter follows the BEA’s annual benchmark revisions that showed that economic growth came in better than first reported last year.

In 2023, the GDP surged by 2.9 percent, up from the initial estimate of 2.5 percent. This was a result of upward adjustments to consumer spending and business investment.

Growth Expectations for 2025 and Beyond

As for the third quarter, forecasters are anticipating solid economic growth.

The Federal Reserve Bank of Atlanta’s GDPNow model anticipates a 2.9 percent expansion.

The New York Fed’s Staff Nowcast expects a 3 percent increase in the GDP in the July to September period.

Economists at S&P Global Ratings expect growth to come in at 2 percent in the fourth quarter, which would be a considerable drop from the 3.1 percent recorded in the same period last year.

“Aside from continued sluggishness in the housing and manufacturing sectors, most recent activity indicators suggest economic growth momentum continues to run slightly above trend, though it has moderated since the fourth quarter of last year,” Satyam Panday, the U.S. and Canada chief economist at S&P, said in a report.

People shop at a clothing store in Washington on May 29, 2024. Madalina Vasiliu/The Epoch Times

Next year could show a slowing economic landscape, according to various forecasts.

A new outlook from the Organisation for Economic Co-operation and Development (OECD) suggests that the U.S. GDP growth rate will be 1.6 percent in 2025, down from the June estimate of 1.8 percent.

However, slowing economic trends could be offset by the Fed’s monetary easing efforts, the Paris-based organization stated.

“Declining inflation provides room for an easing of interest rates, though monetary policy should remain prudent until inflation has returned to central bank targets,” said OECD Secretary-General Mathias Cormann.

Policymakers in the United States and abroad need to improve the government’s fiscal condition by “improving spending efficiency, reallocating spending to areas that better support opportunities and growth, and optimizing tax revenues,” Cormann said.

Economists continue to debate whether a recession is ahead for the United States economy.

Goldman Sachs Research Chief Economist Jan Hatzius penciled in a 20 percent chance of a U.S. recession over the next 12 months.

Mimi Duff, a managing director at GenTrust, placed higher odds of a downturn.

“We put a higher probability of a recession/slowdown over the coming year than the markets,” Duff said in a note.

“We feel markets are placing too high a probability of the perfect soft landing at the moment.”

Despite the plethora of risks facing the national economy, Jennifer McKeown, the chief global economist at Capital Economics, says it is too early to be concerned that the United States is headed to the scenario.

“At the moment, we still think the soft landing Goldilocks-type scenarios is the most likely one,” she said earlier this month during a talk.

Panday placed the probability of a recession starting within the next 12 months at “around 25 percent,” unchanged from the previous forecast three months ago.

According to the Fed’s updated September Summary of Economic Projections, the U.S. economy is predicted to expand at a 2 percent pace in 2025, 2026, and 2027.