US GDP: Stronger-than-expected Q2, but soft trend remains

Real GDP rose 1.7% q/q (saar) in Q2, above our forecast (0.5%) and the consensus (1.0%). However, downward revisions to growth in the previous four quarters mean that the underlying trend is no stronger (Figure 1). Indeed, y/y growth, at 1.4% in Q2, was the same as our forecast and the previous data vintage had implied and now suggests a greater loss of momentum in H1 (Figure 2).

The main upside surprise in Q2, relative to our forecast, was inventory accumulation, which added 0.4pp to growth (at an annualized q/q rate). Based on the monthly data flow we had factored a similar-sized decline. Growth in Consumption (1.8%), residential investment (13.4%), structures (6.8%), and equipment investment (4.1%) were all modestly stronger than we expected, while the drag from government spending (-0.4%) was smaller. Growth in domestic demand was partly offset by a sizable, 0.8pp, drag from net trade, although that this reflected strong import growth (9.5%) suggests that overall demand was firm.

In short, domestic demand growth was surprisingly solid in Q2, given the anticipated headwind from fiscal tightening on both public and private sectors. However, the revisions to the periods immediately prior suggest a general lack of momentum. This is unlikely to change the thinking of policymakers decisively, with the view that demand and, importantly, employment growth are likely to gain more traction in the second half of the year.

A second note, to follow, will provide more details on the revisions to GDP and its components.

Figure 1. Revisions to annualized % q/q







Figure 2. Revisions to %y/y









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