RBC chief economist Frances Donald speaks on the Fed Reserves rate cut decision and monetary policy on Making Money.
The U.S. economy accelerated in the second quarter as the Commerce Department released its second revision of real gross domestic product (GDP) growth for the latest quarter.
The Bureau of Economic Analysis (BEA) on Thursday released its third and final estimate of second-quarter GDP, which showed the economy grew at an annualized rate of 3.8% in the April through June period.
That figure was hotter than the 3.3% estimate of economists polled by LSEG, and came in higher than the Commerce Department’s initial second-quarter GDP estimate of 3%.
BEA explained that the GDP increase in the second quarter “primarily reflected a decrease in imports, which are a substraction in the calculation of GDP, and an increase in consumer spending. These movements were partly offset by decreases in investment and exports.”
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The U.S. economy grew at a faster than expected pace in the second quarter. (David L. Ryan/The Boston Globe via Getty Images / Getty Images)
The revision of second-quarter growth upward by 0.5 percentage points from the BEA’s second estimate primarily stemmed from higher consumer spending than previously reported.
The agency explained that consumer spending on services was revised up and partially offset by a downward revision to goods purchases. The largest contributors to spending on services were transportation, financial services and insurance. The main contributors to goods spending were motor vehicles and parts.
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Economic growth in the first quarter was revised down from a contraction of 0.5% to 0.6%. (Emily Elconin/Bloomberg via Getty Images / Getty Images)
Real final sales to private domestic purchasers, which is the sum of consumer spending and gross fixed private investment, was revised up by 1 percentage point to a gain of 2.9% in the second quarter.
The growth in the second quarter follows a GDP contraction in the first quarter that was revised downward from a contraction of 0.5% to 0.6%, which leaves GDP growth in the first half of 2025 at an annualized rate of about 1.6%.
BEA attributed the upturn in the second quarter to a decrease in imports and an acceleration in consumer spending, which were partly offset by a decline in investment.
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Tariffs are taxes on imported goods that are paid by the importer, who typically passes the higher costs on to consumers through higher prices. (Jesus Olarte/Anadolu via Getty Images / Getty Images)
The revisions to GDP come amid concern about the economy amid signs of a slowing labor market and persistent inflation above the Federal Reserve’s 2% target rate.
“Even though these GDP revisions are backwards looking, they paint a somewhat reassuring picture of the U.S. economy. Notably, personal consumption has been revised higher, giving more credence to the idea that consumers remain resilient,” said eToro U.S. investment analyst Bret Kenwell.
“Despite today’s solid GDP results, this week’s major focus is on tomorrow’s PCE report. Active investors will want to see an in-line or lower inflation result, keeping the Fed on pace for two more rate cuts in 2025,” Kenwell added. “While the inflation and employment reports are a top focus for investors, they will be even more scrutinized in the months ahead.”
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Markets expect the Federal Reserve to move forward with two more 25-basis-point rate cuts this year, following the cut of that size at last week’s meeting.
Policymakers will get a look at the Fed’s favored inflation gauge, the personal consumption expenditures (PCE) index, for the month of August when it’s released tomorrow, while the September jobs report is due out next Friday.
