Economy Rebounds on Import Drop and Consumer Spending Strength

A drop in imports and a pickup in consumer spending led real gross domestic product (GDP) to return to growth in the second quarter, according to the Bureau of Economic Analysis (BEA) advance estimate for the second quarter released Wednesday (July 30).

Real GDP grew at an annualized rate of 3% during the quarter, marking a rebound from the 0.5% contraction recorded in the first quarter, the BEA said in a Wednesday press release.

The second quarter’s gains were partially offset by declines in investment and exports.

The acceleration in consumer spending contributed nearly a full percentage point to GDP growth. The gains were broad-based, led by healthcare (outpatient and hospital services), food services, financial services and insurance, motor vehicle parts and pharmaceutical goods.

Imports fell by 30.3%, making the largest positive contribution to GDP in the quarter due to their subtractive role in the GDP calculation. The drop was concentrated in nondurable consumer goods such as pharmaceuticals and personal care.

Exports declined, particularly automotive goods, dragging slightly on overall growth.

Private investment contracted by 15.6%, driven by a pullback in private inventory investment, especially in chemical manufacturing and wholesale durable goods.

Final sales to private domestic purchasers, a measure of core private demand, slowed to 1.2% growth from the first quarter’s 1.9% growth, suggesting some moderation in underlying domestic momentum.

The gross domestic purchases price index rose 1.9%, a deceleration from the first quarter’s 3.4% increase. The personal consumption expenditures (PCE) price index increased 2.1%, while core PCE (excluding food and energy) rose 2.5%.

The readings suggest easing, although still elevated, inflation pressures. Still, core prices remain above the Federal Reserve’s 2% target.

The Federal Reserve Bank of New York said July 8 that its June Survey of Consumer Expectations found some optimism on inflation, with consumers believing price increases are still likely to be elevated, but at a slowing pace.

Bank of America said July 16 in its quarterly earnings report that healthy consumer spending helped buoy its revenues in the second quarter.

“Consumers remained resilient, with healthy spending and asset quality, and commercial borrower utilization rates rose,” Bank of America CEO Brian Moynihan said in the report.

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