Business investment boosts, U.S. Q2 real GDP annualized quarter-on-quarter revised up to 3.3%, PCE price index 2.5%

The U.S. economic growth rate for the second quarter was revised upward from the initial estimate, primarily driven by improvements in business investment and a significant boost from trade. The growth rate of business investment was substantially revised from the initial report of 1.9% to 5.7%, reflecting increased investment in software and transportation equipment. Net exports contributed nearly 5 percentage points to GDP, reaching the highest level on record.

On the 28th, the U.S. Bureau of Economic Analysis (BEA) released preliminary data on Thursday:

• The annualized quarter-on-quarter revision of the U.S. real GDP for the second quarter is 3.3%, expected 3.1%, previous value 3%.
• The annualized quarter-on-quarter revision of the U.S. core Personal Consumption Expenditures (PCE) price index for the second quarter is 2.5%, expected 2.5%, previous value 2.5%.

Business Investment and Net Exports as Major Drivers

The main impetus for the upward revision of GDP data comes from business investment. The data shows that business investment grew by 5.7% in the second quarter, far exceeding the initial report of 1.9%. This strong growth reflects the upward revision of transportation equipment investment and the strongest increase in intellectual property product investment in four years.

Specifically, the contribution of fixed asset investment to overall GDP jumped from an initial report of 0.08 percentage points to 0.59 percentage points. A month ago, there were opinions on social media questioning how the extremely low investment data seemed to contradict the high data center construction plans announced by tech giants. This revision confirms that the issue lies in the lag of preliminary statistics, rather than a lack of actual corporate investment.

Additionally, net exports contributed nearly 5 percentage points to GDP growth, setting a historical record, whereas in the first three months of this year, net exports had been a drag on GDP.

Consumption Remains Robust, Basic Demand Steady

As the main engine of the U.S. economy, consumer spending showed robust performance. The annualized growth rate of consumer spending in the second quarter was 1.6%, revised up from the initial value of 1.4%. Its contribution to GDP growth increased from 0.98 percentage points to 1.07 percentage points, demonstrating the continued resilience of consumer demand.

However, economists are also closely monitoring another indicator that excludes volatile factors such as trade and inventory—real final sales to private domestic purchasers, which is seen as a purer measure of consumer demand and business investment. The data shows that this indicator has grown at a rate of 1.9% for two consecutive quarters, indicating that basic demand remains stable. Retailers, including Walmart and Home Depot, have also expressed optimism about the resilience of U.S. consumers, despite price increases caused by tariffs beginning to show on store shelves

The two most unstable components—inventory and net exports—basically maintained the pattern from the initial report. The drag on GDP from private inventory changes slightly widened from 3.17 percentage points to 3.29 percentage points, reflecting that companies are digesting the inventory they over-purchased in the first quarter to avoid tariffs. Net exports contributed 4.95 percentage points to GDP growth, remaining roughly flat compared to the initial value of 4.99%, just offsetting the 4.62 percentage points drag caused by the widening trade deficit in the first quarter. Additionally, government spending shifted from a slight contribution of 0.08 percentage points to a small drag of 0.03 percentage points.

Corporate profits rebound, trade becomes the biggest driver

At the same time, another key indicator of economic activity—Gross Domestic Income (GDI) surged 4.8% in the second quarter, in stark contrast to the 0.2% increase in the first quarter.

The corporate profit indicators included in the GDI data also show positive signals. Corporate profits grew 1.7% in the second quarter, reversing the largest decline since 2020 recorded in the first quarter. Currently, whether U.S. companies choose to pass on tariff costs to consumers or absorb them themselves has become a key issue for the U.S. economic outlook in 2025. An indicator measuring the share of after-tax profits of non-financial corporations in total value added (which can be seen as a representative of profit margins) stabilized at 15.7%, well above the general levels seen in the decades before the pandemic.

Inflation indicators moderately revised down

While growth data exceeded expectations, there was good news on the inflation front. The report showed that the GDP price index, which measures the overall price level of the economy, rose 1.8% in the second quarter, revised down by 0.1 percentage points from the initial value.

The report indicated that the core inflation indicator favored by the Federal Reserve—the Personal Consumption Expenditures (PCE) price index excluding food and energy rose 2.5% in the second quarter, unchanged from the initial value. Federal Reserve Chairman Jerome Powell stated at the Jackson Hole annual meeting last week that the impact of higher tariffs on prices is "now clearly visible," but he also cautiously opened the door for a rate cut in September, citing the increased risk of a faltering job market