Summary
Real GDP grew at a revised 3.8% in the second quarter according to the third estimate from the Bureau of Economic Analysis (BEA). Consumer spending and business investment strengthened from last month’s second estimate, when the BEA indicated that 2Q GDP grew at an annualized 3.3% pace. Growth in real final sales to private domestic purchasers grew a sturdy 2.9% in 2Q, up from 1.9% in 1Q when GDP declined 0.6%. This measure excludes the recently noisy trade balance, inventories, and government categories, and focuses on core categories of consumer spending and gross private fixed investment. Consumers look much stronger at the end of 2Q than they did at the end of 1Q. Personal consumption expenditures were up 2.5% in 2Q compared with 0.6% in 1Q. The best indicator for future growth may be that the big services component of PCE (47% of GDP) posted 2.6% growth in 2Q, up from an anemic 0.8% in 1Q. The important story in the investment category is artificial intelligence (AI). Intellectual property grew 15% and the equipment category grew 8.5%. Information processing equipment added 22 basis points to GDP; intellectual property products added 78 basis points. AI more than picked up the slack for a 7.5% decline in construction of structures and a 5.1% decline in residential fixed investment (housing), which were a combined 65-basis-point drag on GDP. Transportation equipment added 27 basis points to growth. Outside of core categories, a big decline in goods imports boosted 2Q G