The third estimate for second quarter GDP released today reaffirmed the previous data provided by the Commerce Department that the economy grew at a 2.5% annual rate.
While the bottom line was unchanged, some modest adjustments to the underlying data has refined the picture a bit. At the margins, it also suggests that the drivers of growth were of a slightly higher quality. Inventory growth was revised lower, while government spending cuts were less than previously reported and already solid gains in housing were revised higher.
Estimates of personal consumption were largely unchanged, as consumption expanded at a moderate 1.8% pace during the quarter. Consumers continue to find it difficult to spend at a more robust clip given the weak growth in real disposable income that has been a constraining byproduct of the lackluster expansion. Nonetheless, improvement in consumer confidence since the beginning of the year has supported spending.
The housing market remains a relative bright spot as the sector continues its recovery. Residential investment accelerated a bit in the second quarter, and those gains were amplified in today’s report, edging above 14%. Whether or not that is able to be sustained in the third quarter against the backdrop of a sharp rise in mortgage rates will be telling.
Given the relative staleness of the data and the lack of any meaningful surprise in the report, today’s GDP print is unlikely to have a meaningful impact on financial markets. It did reaffirm the economy grew at a solid pace last quarter, which is positive news, but already baked into the cake. The caveat is that the economy remains stuck in second gear, unable to gather sufficient momentum to reach a growth pace consistent with a typical expansion.