Stronger business investment boosts US Q2 GDP growth

The second estimate of Q2 GDP revised up growth to 3.7% q/q saar, above (3.3%) and consensus (3.2%) expectations due to a larger-than-expected revision to portions of fixed business investment and government spending. Personal consumption was revised up as expected in Q2 to 3.1% (initial: 2.9%), in line with recent revisions to core retail sales data.

Within this, goods consumption rose a solid 5.5% (initial: 4.8%) and services consumption rose 2.0% (initial: 2.1%). The revised Q2 data show a stronger rebound for consumer spending in the second quarter, which should set the pace for solid overall growth in the second half. Within private business investment, nonresidential structures investment was revised up to 3.1% from -1.6% in the advance estimate.

" Equipment investment was revised up to -0.4% (initial: -4.1%) and intellectual property investment was marked higher to 8.6% (initial: 5.5%). The revision to equipment investment was larger than expected, while the revision to intellectual property investment was largely unanticipated as there is little publicly available source data for this series', notes Barclays.

Together, these revisions brought private nonresidential private business investment to 3.2%, up from -0.6% in the advance estimate. For public sector spending, government consumption and investment was revised up to 2.6% from 0.8%. The revision to state and local government spending (4.3%, initial: 2.0%) were largely anticipated from monthly data releases; however, the boost to federal national defense spending (0.3%, initial: -1.5%) was unexpected given the limited publicly available data for these outlays.

The remaining revisions to portions of GDP were largely in line with expectations. Residential investment was revised modestly higher to 7.8% from 6.6%. Net trade is now estimated to have added 0.2pp to growth, up from 0.1pp in the advance estimate. Private inventory investment was revised up to $121.1bn, and is now estimated to have added 0.2pp to GDP growth versus the previously reported 0.1pp drag.

"With private consumption on a solid growth trajectory and some tentative signs of stabilization in private investment, we continue to look for H2 GDP growth of 2.5%. We view the second quarter revisions as encouraging on balance, but also note that these statistics are stale in the minds of FOMC policymakers relative to the recent volatility in financial markets", says Barclays.