U.S. Economy Grew At Slower Pace in Second Quarter—But Consumers Spent Even More

The growth of the U.S. economy in the second quarter was revised lower on Wednesday, as weaker business spending more than offset stronger consumer spending.

The government said that gross domestic product grew at a 2.1 percent annual pace in the the three months from April through June. The first estimate had the economy growing 2.4 percent in the quarter.

Even after the downward revision, the economy is still growing faster than what many economists consider its long-run potential. Officials at the Federal Reserve have said that they thin the economy needs to grow by less than potential—which they estimate at 1.8 percent per year—for inflation to fall to the central bank’s two percent target.

GDP, which is the government’s main measure of U.S. economic activity, rose two percent in the first three months of the year. Although the economy was expected to slow as the year unfolded—with many economists expecting an outright recession in 2023—it appears to have accelerated.

Many forecasters see the economy growing 2.5 percent in the third quarter. The Federal Reserve Bank of Atlanta’s GDPNOW reads the data released so far as consistent with a growth rate of 5.9 percent. While that figure is likely to come down as we get more data on activity in the third quarter, it suggests growth is still proceeding at a fast pace in the current quarter.

On the other hand, surveys by regional Federal Reserve banks and private sector data companies appear to indicate a significant slowdown in August. A survey of business executives from S&P Global indicated last week that manufacturing output contracted in August and services sector output growth slowed.

Softer business investment and inventories were mainly responsible for the downward revision. Pretax profits fell at a 0.4 percent annual rate and are down 6.5 percent compared with the second quarter a year earlier.

Growth in consumer spending was revised up to an annual rate of 1.7 percent from the earlier estimate of 1.6 percent.

The personal consumption expenditure price index, a measure of inflation, increased 2.5 percent in the quarter, a downward revision of 0.1 percentage point. Excluding food and energy prices, the PCE price index increased 3.7 percent, a downward revision of 0.1 percentage point.