Robust business investment and strong consumer demand should drive a modest acceleration in U.S. gross domestic product in the second quarter when the data is released Thursday.
We expect real GDP to increase at a 2.3% annualized pace for the quarter as stabilizing oil prices and a firmer labor market set the stage for a firmer quarter than the headline alone would suggest.
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Consumption should lead the way, rising by 2.6% annually. The American consumer absorbed the gasoline price shock earlier in the year and began to rebound as those risks faded.
While lower-income consumers are struggling with higher gas prices and service costs, wealthy households have shrugged off the latest supply shock and continue to spend on discretionary items.
Two calendar events added to the quarter’s demand: Amazon’s Prime Day, which moved from July to late June this year, and the opening weeks of the World Cup. Both events pulled activity into the second quarter.
Business investment should stay strong. Capital expenditures have held up through the quarter, and non-residential fixed investment remains one of the more durable legs of this expansion.
Net exports will be the primary drag on overall growth.
The trade deficit widened in the second quarter, in part because domestic demand was strong enough to pull in imports. That is not a symptom of weakness, but it will make the top-line figure look softer than what underlying demand delivered.
Inventories, which are always a swing factor in the quarterly GDP numbers, look close to neutral. Gains were modest across the board and are unlikely to contribute much either way.
June retail and wholesale inventories have come in below expectations, which adds some downside risk to our 2.3% call.
The takeaway
This is a quarter where the composition matters more than the print. Final sales to private domestic purchasers—which strip out trade and inventories—should run meaningfully above 2.3% and is the cleaner read on where the economy stood at midyear.
Going forward we expect that top-line growth will continue to accelerate toward 2.5% in the current quarter.
