Source: Economics Group of Wells Fargo Bank, N.A.
Summary
Consumer spending propelled the economy to a 3.0% annualized growth rate in Q2, an upward revision that exceeded expectations. A rebound in profits growth recouped all the prior quarter’s decline and then some to restore profits to a record high.
Consumer to Rest of Economy: I Got This
With the benefit of additional data, the Commerce Department upwardly revised the annualized growth rate for the U.S. economy to 3.0% in the second quarter (chart). Most of the upward revision can be attributed to a more robust pace of consumer spending, which is now reported to have grown at a 2.9% annualized rate, up from 2.3% previously (chart). There is plenty of evidence that restrictive policy is weighing on the labor market and on construction, where revisions today revealed a more measured pace of structures investment and an outright decline in residential investment.
But with +1.95 percentage points of the overall 3.0% growth rate coming from consumer spending, it is less clear that higher-for-longer is posing a major impediment to household spending, no matter how much sentiment and confidence measures may say otherwise.
The faster pace of consumer spending along with stronger business fixed investment (more on that below) and government expenditures meant a faster pace of import growth as well. But since export growth did not keep up, trade subtracted 0.77 percentage points (PP) from the headline figure, a slight bit more than the 0.72 PP drag reported previously.