Upward Revisions Made to Q2 GDP Figures

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Following the Bureau of Economic Analysis’ final revision of Q2 2025 GDP figures, GDP growth was revised higher to 3.8% on an annualized basis versus a prior estimate of 3.3%, marking the fastest economic growth rate since 2021.

Among the key revisions to the Q2 economic report were an upward revision in consumer spending to 2.5% from a prior estimate of 1.6% and nonresidential investment was adjusted upward to 7.3% from a prior estimate of 5.7%. Bloomberg reported that the robust consumer spending growth reflected an increase in spending on transportation services, financial services, and insurance. Nonresidential investment was boosted by an increase in intellectual property spending and over $40 billion, on an annualized basis, in new investment for data centers.

Although the report mostly shined a more positive light on the US economy, there were also some notable negative adjustments to the statement. Second quarter personal consumption expenditures (PCE) calculation was adjusted up to 2.6%. Bloomberg’s consensus report predicts that PCE inflation could be reported at 3% for August in a report expected on Friday, September 26th. Furthermore, the conditions for residential investment worsened more than originally expected, being revised to -5.1% versus a prior estimate of -4.7%. As reported in last week’s news, US Census Bureau data for August continued to show slowing construction permits for both single and multi-family homes.

WSD Take:

Although the revision to the Q2 data was welcome news, economic conditions in the United States are increasingly foggy. Following the data update, economists were fairly split with some taking the opportunity to point to recent pessimism following weak August employment data as an overreaction. Others, however, suggested that the impact of tariffs and a weaker job market had yet to be realized during the first half of the year and that economic activity is likely to slow during the second half of 2025. As discussed in the next article, the Paris-based OECD currently forecasts 2025 GDP growth in the US to slow to 1.8% on an annualized basis, down from 2.8% growth in 2024.

‘Uncertainty’ has been a key theme throughout this year, in large part due to radical changes in US economic policy. As many investors look to the Federal Reserve for guidance on interest rate policy, it is increasingly clear that the Federal Reserve is in a tight position. ‘Uncertainty’ has become a bit overplayed, with surveys such as the PMI and consumer confidence showing businesses and consumers both unsure about the economy, but investment and spending continuing despite said uncertainty.

On the other hand, the job market appears to be flashing warning signs. Job openings are at their lowest level since the beginning of COVID and at the same time businesses are currently slow in laying off workers, maintaining unemployment rates at acceptably low levels. Meanwhile, inflation has slowly crept higher, and some economists argue that inflation rates have yet to fully reflect the impact of rising tariff rates.

Fed Chairman Powell has made it clear throughout his tenure that sustaining an acceptable threshold of inflation is central to the Federal Reserve’s duties; therefore, the risk of limited policy actions if PCE is reported at 3.0% or above in the coming months leaves the economy at the dreaded risk of “stagflation” (the economic condition whereby economic growth stagnates amid growing inflation).

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