US Q2 GDP: Consumption continues to outperform

The third estimate of Q2 GDP revised up growth to 3.9% q/q saar, a bit above forecast and consensus expectations for an unchanged headline reading of 3.7%. Better consumer spending on services boosted real private consumption growth to 3.6% (forecast: 3.5%), up from 3.1% in the second estimate. Goods consumption was unrevised at 5.5%, and spending on services grew 2.7% (initial: 2.0%). The upward revision to services consumption was due to new source data from the Quarterly Services Survey (QSS) that showed more spending on healthcare and other services than was previously estimated. On a year-on-year basis, consumption grew 3.3% in Q2, in line with Q1 and still above its 30-year trend of 2.9%. This suggests consumers have continued to benefit from lower gas prices and labor market improvements. We expect consumption to maintain its current pace over the next few quarters.

Fixed business investment was also revised higher this morning, to 5.2% from 4.1% previously. Within this, structures investment (6.2%, initial: 3.1%, residential investment (9.3%, initial: 7.8%) and equipment investment (0.3%, initial: -0.4%) all received a boost. Intellectual property investment (8.3%, previous: 8.6%) was revised a touch lower but continues to growth at a healthy pace.

"The data on structures investment suggest that the drag on growth from reduced oil and gas drilling activity has largely subsided, but as we have noted, this category of the national accounts is prone to residual seasonality", says Barclays.

Apart from statistical issues, however, investment in energy infrastructure for refining and export is likely to provide a sustained boost to private nonresidential structures investment (US Outlook: Energy build-out resilient to lower oil prices). Equipment investment continues to mirror the headwinds for the domestic manufacturing sector from lower energy prices and a strong dollar. Residential investment supports the data on durables consumption that show a healthy US consumer. Elsewhere, inventory investment was revised down in line with our expectations. On balance, this morning's data show that growth rebounded in Q2 in a balanced fashion after the seasonality-induced slowdown in Q1.

"Our Q3 GDP tracking estimate suggests growth has remained on track in the current quarter. We are tracking private consumption growth of 3.2%, further supported by gains in business investment and government spending. Headline growth is likely to be held back by a slower pace of inventory investment in Q3, but we are tracking real final sales growth of 3.4%. This morning's data have no substantive effect on our tracking estimate, and we continue to look for GDP growth of 2.5% from Q4 through late next year", added Barclays.