U.S. GDP Growth Revised Up in both Q1 and Q2; Benchmark Revision Small

In the third estimate, real GDP grew 2.2% q/q saar in Q2, up from 1.5% in both the advance and the second estimates, 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 2.2% versus 2.1% in both the advance and second estimates. The upward revision to Q2 GDP growth were rather widely spread across expenditure categories, led by personal consumption expenditures, nonresidential fixed investment and a smaller drag from declining inventories. This was the fifth consecutive quarter in which inventories declined, a very unusual occurrence when the economy is not in a recession. This release also contained the second estimate of corporate profits. Profit growth was revised down to 8.9% q/q not annualized from 9.1% in the first estimate. However, this was still the fastest quarterly advance for profits since Q2 2021.

Personal consumption expenditures increased 3.8% q/q saar in the third estimate of Q2, up from 3.4% in the second estimate and 3.2% in the advance report. Faster growth of spending on durable goods and on services were the primary factors behind the upward revision to consumption. Fixed investment growth was also revised faster. Growth of nonresidential fixed investment was revised up to 9.0% from 8.5% in the second estimate, led by upward revisions to both structures and intellectual property. Residential investment growth was also revised up to 2.8% from 1.2% in the second estimate.

Both export and import growth were revised slightly faster but resulted in only a slight widening of the trade deficit and no revision to on overall GDP growth. The previously estimated decline in total government spending growth was revised smaller with a smaller decline in federal spending than previously estimated and a larger increase in state and local government.

Reflecting the upward revision to personal consumption and fixed investment, real domestic demand growth, already strong in the previous two estimates, was revised even stronger. Real final sales to domestic purchasers (GDP less inventory investment and net exports) increased a well above trend 3.8% q/q saar in Q2 versus 3.3% in the second estimate and 3.1% in the advance report. Real final sales to private domestic purchasers (the Fed’s preferred measure of domestic demand) jumped 4.6% q/q in Q2, its largest quarterly gain since Q1 2023, up from 4.2% in the second estimate and 3.9% in the advance report.

After having been revised higher in the second estimate, GDP inflation measures were revised down in the third estimate. GDP price inflation was revised down to 6.1% q/q saar in the third estimate from 6.4% in the second estimate, still due mostly to the surge in energy prices that occurred in Q2. The core GDP price index rose a revised 4.2%, down from 4.4% in the second estimate. PCE price inflation (the measure the Fed targets) in Q2 was also revised down to 5.0% from 5.3% in the second estimate, again reflecting the surge in energy prices, with core PCE inflation revised down to 3.3% from 3.6% previously but still well above the Fed’s 2% target.

Today’s report also included annual benchmark revisions for the period Q1 2021 to Q1 2026. Annual updates provide the opportunity to incorporate improvements that are generally of three types: (1) statistical changes to incorporate newly available and revised source data and to introduce new and improved methodologies, (2) changes in definitions to more accurately portray the evolving U.S. economy and to provide consistent comparisons with data for other national economies, and (3) changes in presentations to reflect the definitional and statistical changes, where necessary, or to provide additional data or perspectives for users. In addition, seasonally adjusted statistics are evaluated and revised during annual updates to reflect recalculated seasonal factors.

In general, these revisions were generally small. After the benchmark revision, annual real GDP grew 3.4% at an annual rate from 2020 to 2025, up slightly from the previously reported 3.3% increase. Real personal consumption expenditures growth slowed marginally to a still well-above trend 3.9% from 4.0% previously. Nonresidential business investment posted the largest upward revision, rising 5.9% from 2020 to 2025 versus 5.4% previously estimated. Residential investment fell a revised 1.3%, down slightly from -1.1% previously. Growth of exports and imports were revised up marginally. And government spending growth was revised up to 1.8% from 1.4%.

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.