Data released today by the U.S. Department of Commerce show second quarter real Gross Domestic Product grew 2.3 percent following an upwardly revised first quarter gain of 0.6 percent. Along with today’s first estimate of second quarter GDP, Commerce also released revised estimates of GDP for the past three years. 

On balance, the revisions show a slightly lower trajectory for GDP, but still suggest a solid upward trend.

While the revisions suggest a slightly slower growth rate over the past three years on average, the important point is that GDP has reaccelerated from the weak first quarter. Leading the rebound were solid gains in most areas of consumer spending including durable goods, nondurable goods excluding fuel, and services excluding utilities. Gains in these areas of consumer spending suggest the consumer is bouncing back, supported by continued improvement in the labor market. 

Trade activity also improved in the second quarter, as U.S. exports rose at a faster pace and imports increased at a slower pace. Residential investment (housing) posted a respectable 6.6 percent gain in the second quarter, though that trailed the 10.1 percent rise on the first quarter.

The laggards in the report continue to be business investment and federal government spending.  Given the strong financial position of the corporate sector overall and low cost of financing, we would expect business investment to pick up as the outlook for final demand improves.

On the inflation front, price measures in today’s release show consumer prices remain very tame with the core Personal Consumption Expenditures price index increasing 1.8 percent from the first quarter, but just 1.3 percent from a year ago.

Overall, the report shows a rebounding U.S. economy in the second quarter, but no major shifts in the recent trends. We continue to expect moderate growth in the quarters ahead, and for inflationary pressures to pick up slightly, but price increases to remain below the Fed’s target.  The moderate growth in GDP and prices does give the Fed more flexibility in deciding when to implement the first rate hike, despite being widely expected in September. Regardless of liftoff, we expect the pace of future rate increases to be substantially slower than previous tightening cycles.