Higher US GDP and Higher Prices in Q2 Helping the US Dollar
Today's US GDP numbers for Q2, as well as prices, were revised higher, which are helping the USD push higher again after yesterday's gains.
Today’s US GDP numbers for Q2, as well as prices, were revised higher, which is helping the USD push higher again after yesterday’s gains. These figures suggest that the US economy is not showing any signs of the recession that markets were fearing early this month, while inflation is not falling as fast as previously thought.
These revisions highlight stronger consumer spending and improved corporate profits, signaling a robust economic performance in Q2. However, trade continues to be a drag on growth, and business investment saw a slight downward revision. Although overall, this report is it’s upbeat, and is helping the USD buyers.
US Q2 GDP Second Estimate
- Q2 GDP Growth: Revised to +3.0% annualized, exceeding the expected +2.8%
- Initial Q2 Estimate: +2.8% annualized
- Final Q1 GDP: +1.4% annualized
Detailed GDP Breakdown
- Consumer Spending: Increased to +2.9% from a +2.0% advance estimate
- Durable Goods Spending: Rose by +4.9%
- GDP Final Sales: Revised up to +2.2% from +2.0%
- GDP Deflator: Revised up to +2.5% from +2.3%
- Core PCE: Slightly revised down to +2.8% from +2.9%
- Business Investment: Lowered to +4.6% from +5.2%
- PCE Services Inflation (Excluding Energy and Housing): Dropped to +2.3% from +3.3%
- Corporate Profits (Preliminary): Improved to +1.7% from -2.7% in the previous quarter
Contributors and Subtractors to Q2 GDP Growth
- Consumption: Contributed +1.95% (up from +1.57% in the advance estimate; Q1 contribution was +0.98%)
- Government Spending: Added +0.46% (slightly down from +0.53% in the advance estimate; Q1 was +0.31%)
- Net International Trade: Subtracted -0.77% (a larger drag compared to -0.72% in the advance estimate; Q1 was -0.65%)
- Inventories: Added +0.78% (slightly down from +0.82% in the advance estimate; Q1 was a -0.42% drag)
While the Q2 GDP data is old news, it clearly indicates that the economy was as strong as many corporations indicated in their earnings reports. This solid growth is reflected in higher GDP numbers and increased consumer spending, both of which point to a resilient economic environment. Looking ahead, the upcoming PCE inflation data could add more clarity to the inflation outlook. If the PCE numbers show a higher base, it might result in a lower month-over-month figure for July, which could be interpreted as dovish in tomorrow’s PCE report. However, this wouldn’t necessarily impact the year-over-year inflation rates significantly.
Overall, these economic indicators are bullish for the US dollar. With stronger-than-expected GDP growth and consumer spending showing solid gains, the case for a 50 basis point rate cut by the Federal Reserve seems less likely, even if the non-farm payrolls report shows some weakness. The combination of robust growth and controlled inflation suggests that the Fed might opt for a more cautious approach in adjusting interest rates, focusing instead on maintaining economic stability.
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