The GDP growth rate in the United States for the second quarter was revised up to 3.8%, reaching a nearly two-year high, with the PCE price index at 2.6%

The U.S. economy grew at its fastest pace in nearly two years in the second quarter, thanks to a significant upward revision of consumer spending data.

On Thursday, the Bureau of Economic Analysis (BEA) released preliminary data showing:

• The annualized quarter-on-quarter real GDP growth rate for the U.S. in the second quarter was 3.8%, expected 3.3%, previous value 3.3%.
• The annualized quarter-on-quarter core Personal Consumption Expenditures (PCE) price index for the U.S. in the second quarter was 2.6%, expected 2.5%, previous value 2.5%.

As the core engine of economic growth, consumer spending was revised up from a previous 1.6% to 2.5%, becoming the key driver of this data revision.

Other data released on the same day showed robust growth in business equipment orders, a larger-than-expected narrowing of the goods trade deficit, and initial jobless claims dropping to their lowest level since mid-July. Concerns about a U.S. economic recession have further eased.

Consumption and Investment Drive Growth Together

According to detailed data from the BEA, the strong performance of GDP in the second quarter was mainly supported by consumption and non-residential investment.

• Consumer spending: The annualized quarter-on-quarter growth rate was revised up from an initial 1.6% to 2.5%.
• Non-residential investment: The growth rate was revised up from 5.7% to 7.3%, indicating strong corporate investment willingness.
• Residential investment: Saw a slight downward revision, with the contraction widening from 4.7% to 5.1%.
• Gross Domestic Income (GDI): As another key indicator of economic activity, its growth rate was revised down from 4.8% to 3.8%, consistent with GDP growth.

In addition to the quarterly data update, the BEA also released annual revisions to the national economic accounts for the past five years. The report indicated that the impact of this annual revision on the overall economic picture is "relatively minor." From 2019 to 2024, the average annual growth rate of U.S. real GDP remains at 2.4%.

Mixed Growth Outlook

Despite the strong economic performance in the second quarter and a good start to the third quarter, economists have differing views on the growth outlook for the future. The Atlanta Federal Reserve's GDPNow model predicted before Thursday's data release that the economic growth rate for the third quarter (July to September) would reach 3.3%.

However, economists are less optimistic about the growth outlook for the fourth quarter. There are widespread concerns that signs of weakness in the labor market may undermine consumers' spending capacity, thereby dragging down economic growth. Looking further into the future, economists expect economic activity in 2026 to only see a slight rebound, partly due to the impact of tax laws from the Trump era and a lower interest rate environment. Most forecasters believe that the growth rate of the U.S. economy will be below 2% in the coming years.

Inflation Pressures Persist, Potentially Hindering the Federal Reserve

One detail in this data revision that investors should pay close attention to is the upward adjustment of inflation indicators. The report shows that the Federal Reserve's preferred measure of inflation—the core Personal Consumption Expenditures (PCE) price index, excluding food and energy—is expected to grow faster throughout 2024 than previously estimated.

Specifically, the annualized quarterly rate of the core PCE price index for the second quarter has been revised up to 2.6%. Economists expect that the PCE monthly data for August, to be released on Friday, may show a year-on-year increase close to 3%.

Ongoing inflation pressures could directly influence the Federal Reserve's decisions. Although the Federal Reserve just cut interest rates last week, higher inflation data will undoubtedly raise concerns among some policymakers about further easing of policies, "which may limit the extent of rate cuts by the Federal Reserve in the coming months," the report analysis stated.

Market Reaction

U.S. stock futures dipped slightly, with the Nasdaq 100 index falling by 0.6%.

The U.S. dollar index rose about 20 points in the short term, currently reported at 98.10.

Spot gold fell about $8 in the short term, currently reported at $3,746.41 per ounce. The yield on the U.S. 10-year Treasury bond rose in the short term, currently reported at 4.177%.

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