Consumer Spending Helps Lift Q2 GDP Past Initial Estimates

Consumer spending, the main engine that drives the U.S. economy, continues to lay a solid foundation for growth.

The Bureau of Economic Analysis published Thursday (Aug. 28) its second estimate for the second quarter of the year’s GDP. The headline number indicated that real GDP grew 3.3% in the second quarter, 0.3% higher than what was reported in the advanced estimate, rebounding from the 0.5% loss reported in the first quarter of the year.

The increase in real GDP can be explained by a decrease in imports, but also by an increase in consumer spending. These movements were partially offset by decreases in investments and exports.

Real final sales to private domestic purchasers, which combine consumer spending and private fixed investment, grew 1.9% in the second quarter, an upward revision of 0.7 percentage points from the previous estimate.

The price index for gross domestic purchases rose 1.8% during the quarter, slightly lower than the earlier estimate.

The personal consumption expenditures (PCE) price index increased 2%, so the read-across is that spending outpaced inflation.

The momentum was observed in goods, with pharmaceutical products leading the rise, and services, where healthcare, food services and accommodations saw gains. This broad-based increase in personal consumption expenditures signaled heightened consumer confidence and activity, which had a multiplier effect throughout the economy.

Excluding food and energy, the core PCE price index increased 2.5%, unchanged from the earlier figure.

Real gross domestic income (GDI) grew 4.8% in the second quarter, following only 0.2% growth in the first quarter. The average of real GDP and real GDI expanded 4%, compared with a 0.1% decline in the previous quarter.

There are indications, gleaned from earnings season, that the momentum may continue, although spending may be allocated toward low-priced merchants amid promotional activity.

That is especially true of the third quarter, which stretches into the end of next month.

Back-to-school spending is at a record high, with parents shelling out over $1,200 per household, suggesting that items such as backpacks and dorm room essentials are non-negotiable for many families. That signals an intent to spend that could last through August and into the fall.

A May PYMNTS Intelligence report, “Shoppers Pull Back as Half of US Consumers Expect Tariffs to Raise Prices at Double the Rate of Inflation,” indicated that, as tariffs became a reality, nearly a third of consumers switched to less expensive brands.

Walmart, which acts as a bellwether for consumer spending, said during an earnings report this month that it has seen some resilience in household purchases as consumers seek value.

CEO Doug McMillon told analysts on an earnings call that spending by U.S. consumers has “been generally consistent. We aren’t seeing dramatic shifts. The way things have played out so far, the impact of tariffs has been gradual enough that any behavioral adjustments by the customer have been somewhat muted… Not surprisingly, we see more adjustments in middle- and lower-income households than we do with higher-income households.”

He also said that “in discretionary categories where item prices have gone up, we see a corresponding moderation in units at the item level as customers switch to other items or, in some cases, categories.”

The post Consumer Spending Helps Lift Q2 GDP Past Initial Estimates appeared first on PYMNTS.com.