We got the second update on 2nd Quarter GDP, which allows for a lot of recently released and revised data to be incorporated. And it turned out that the US economy grew even faster than we thought during the Spring.
In digging through the components of the report, real consumption had a nice rebound from a slow 1st Quarter. Higher interest rates led to a decline in residential home building, but higher inventory builds made for a higher GDP number.
That inventory number made me want to break down the GDP figures a bit further, and do another measure that I like to do. One which removes increases or decreases in government spending and the change in inventories, to get an idea about the underlying strength or weakness of the economy. And when looked at that way, we've had some weakening from the strong numbers that we had in much of 2023.
Another revision in the report mentioned that the PCE price index (which the Fed allegedly uses as the best indicator of inflation) was dropped from 2.6% in the first report to 2.5%. The "core" PCE index also was revised down by 0.1%, from 2.9% to 2.8%.
It was also a welcome decline from the bump up that we had in PCE inflation at the start of 2024, and back down toward the lower levels that we were seeing in the last half of 2023.
All of this looks like pretty good news. The overall economy continued to grow at a good pace in the 2nd Quarter of this year, and prices weren't going up by as much. And the underlying slower growth and ivnentory builds should continue to keep inflation under control, and pave the way for interest rate cuts starting in less than 3 weeks.
I'll take it. And we'll see if July's income and spending report continues the good direction when that comes out tomorrow.
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