The growth in Real Gross Domestic Product (GDP) slowed in the second quarter of this year, but increased consumer spending and a reduction in government spending provided bright spots, the initial estimate released by the Commerce Department on Thursday reveals.
Adjusted for inflation, Real GDP increased 1.5% in the second quarter after rising 2.1% in the first quarter, according to the latest estimate by U.S. Bureau of Economic Analysis. Imports, which subtract from GDP, rose 11.5%.
While the 0.8% decrease in government consumption expenditures and investment was also a drag on GDP growth, it provides welcome relief for taxpayers who foot the bill for the expenditures. Federal non-defense expenditures decreased 12.9% from the first quarter and total federal government spending fell 4.1%.
Decreasing the taxpayer burden of federal government spending has been a key goal of President Donald Trump and, in five of the six quarters since he reentered the White House, his administration has succeeded in lowering expenditures.
On the consumer side, positive signs include a healthy increase in real final sales to private domestic purchasers. The sum of consumer spending and gross private fixed investment, this economic measure increased 3.9% in the second quarter, more than doubling the first quarter’s 1.7% gain.
At 3.9%, the increase in private domestic purchases represents the highest growth since the first quarter of 2023, when it also advanced 3.9%.
“Led by the solid gains in personal consumption expenditures and business spending, domestic demand posted stellar growth in Q2,” Haver Economics explains:
“Real final sales to domestic purchasers (GDP less inventory investment and net exports) increased a well above trend 3.1% q/q saar in Q2 after a 2.2% quarterly increase in Q1. Compared to a year ago, this measure of domestic demand was up 2.2%. Real final sales to private domestic purchasers (the Fed’s preferred measure of domestic demand) jumped 3.9% q/q in Q2, its largest quarterly gain since Q1 2023, to be up 2.6% from a year ago.”
The 5.2% increase in expenditures on goods was led by purchases of nondurable items. It was also the largest percentage quarterly gain since the fourth quarter of 2024 (6.9%). Within services, expenditures rose 2.2%. Here, the leading contributors to household consumption expenditures were food services and accommodations, the Commerce Department report notes.
While Thursday’s report puts second quarter GDP grow at 1.5%, it is merely what the Commerce Department calls an “Advance Estimate.”
Thus, the 1.5% rise reported Thursday is being compared to the final number of 2.1% reported for the first quarter – which was revised up from the previous estimate of 1.6%, suggesting that the final report for the second quarter may also yield significantly different results and comparisons.
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