U.S. GDP Growth in Q2 Unrevised in Second Estimate; Corporate Profits Surged

In the second estimate, real GDP grew 1.5% q/q saar in Q2, the same as the advance estimate, following a 2.1% increase in Q1, according to the Bureau of Economic Analysis. The Action Economics Forecast Survey looked for an unrevised 1.5% quarterly gain. Compared with a year ago, GDP was up 2.1%, also unrevised from the advance estimate. The slightly subpar performance in the second quarter continued to be due mostly to significant drags exerted by trade and inventory investment. An upwardly revised 12.5% q/q surge in imports (previously 11.5%) widened the trade deficit further resulting in net exports subtracting 1.1%-points from overall growth (previously -1.0%-point). Inventory investment declined a little more than previously estimated to $53.1 billion (2017$) in Q2 (previously -$50.8 billion) but still subtracted 0.7%-point as in the advance report. This was the fifth consecutive quarter in which inventories declined, a very unusual occurrence when the economy is not in a recession.

The second estimate of GDP contains the first estimate of corporate profits. They continued to soar in Q2, increasing 9.1% q/q not annualized following a 1.7% quarterly gain in Q1. Over the past four quarters, corporate profits have risen 22.8%, the fastest four-quarter growth since Q4 2021. In Q2, domestic profits jumped 9.9%, the fifth consecutive quarterly increase. Foreign profits rebounded 3.5% in Q2 after a 10.4% quarterly decline in Q1. Also, with an estimate of profits, gross domestic income (a second measure of total output in an economy) can be estimated. Real gross domestic income increased 2.2% q/q saar in Q2, up from 1.2% in Q1 and well above the 1.5% increase in GDP.

Personal consumption expenditures and business spending on equipment and intellectual property provided much of the boost to overall GDP growth in Q2 in the second estimate, as they had in the advance report. PCE grew 3.4% q/q saar in Q2 (previously +3.2%), accounting for 2.3%-points of overall GDP growth (previously 2.1%-points). Growth of spending on goods was revised down to 4.3% from 5.2% while spending on services was revised up to 3.1% from 2.2%.

The second consecutive double-digit increase in business spending on equipment was revised down to 13.6% q/q saar from 15.2% in the advance report. However, the previously reported 5.0% quarterly decline in spending on nonresidential structures was revised up to -1.8%. Consequently, growth in nonresidential fixed investment was revised up slightly to 8.5% from 8.4% in the advance report. The 1.5% increase previously reported for residential investment was revised down to a 1.2% gain.

The 0.8% q/q saar previously reported for total government spending was revised down to -1.0% in the second estimate. Federal nondefense spending fell 3.5% versus -3.4% previously. Growth of spending by state and local governments slowed to 0.9% from 1.1% in the advance report. Accordingly, the drag from government spending increased to 0.2%-point from 0.1%-point in the advance report.

Reflecting the upward revision to personal consumption and the increased drag from the trade deficit, real domestic demand growth, already strong in the advance report, was revised even stronger. Real final sales to domestic purchasers (GDP less inventory investment and net exports) increased a well above trend 3.3% q/q saar in Q2 versus 3.1% in the advance report. Real final sales to private domestic purchasers (the Fed’s preferred measure of domestic demand) jumped 4.2% q/q in Q2, its largest quarterly gain since Q1 2023, up from 3.9% in the advance report.

GDP inflation measures for Q2 were generally revised slightly faster in the second estimate. GDP price inflation was revised up to 6.4% q/q saar from 6.2% in the advance report, still due mostly to the surge in energy prices that occurred in Q2. The core GDP price index rose 4.4% in the second estimate, the same as in the advance report. PCE price inflation was also revised up to 5.3% from 5.1% in the advance report with core PCE inflation revised up to 3.6% from 3.4% previously.

The GDP data can be found in Haver’s USECON and USNA databases. USNA contains virtually all of the Bureau of Economic Analysis detail in the national accounts. The Action Economics consensus estimates can be found in AS1REPNA.