Strong US Q2 GDP figure unlikely to be repeated this year
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Q2 US GDP figures surprised to the upside. On quarter-to-quarter annualized basis, GDP grew by 2.8% (see figure 1). The most important contributor was consumption, which contributed 1.57 pp this quarter (up from 0.98 pp in Q1). This was due to a major jump in the contribution of goods consumption. In contrast, the contribution of services consumption declined somewhat. The contribution of fixed investments declined from 1.19 pp to 0.64 pp. This decline was entirely due to residential fixed investments, which made a slight negative contribution this quarter. Non-residential fixed investment made a solid 0.69 pp contribution last quarter. Government spending also made a solid 0.53 pp contribution (up from 0.31 pp last quarter). The biggest upward surprise came from inventories, which made an impressive 0.82 pp contribution, up from -0.42 pp last quarter. Only net exports made a negative contribution of 0.72 pp, as imports grew rapidly.
One-off surprises embellish GDP figures
Though the headline figure is impressive, the underlying figures reveal a more mixed picture. First, the 0.82 pp inventory figure is likely to be a one-off i.e. (more than) offsetting the inventory decrease of the previous quarter. Historically, inventory contributions average only 0.09 pp, and they are highly volatile (standard-deviation of 2.5 pp). Furthermore, high figures in one quarter tend be compensated by negative figures in the subsequent quarters. Negative inventory contributions are thus plausible in the coming quarters.
Second, the strong non-residential fixed investment figure was embellished by strong airline deliveries, a likely one-off. Non-residential fixed investment ex. transportation equipment only contributed 0.22 pp in Q2, a strong decline from the 0.79 pp contribution last quarter. Fixed investments are thus likely to come in lower in the coming quarters.
Consumption likely to weaken in the coming quarters
Finally, the high consumption contribution is unlikely to be sustainable. In June, the saving rate declined to 3.4%, the lowest figure since December 2022 (see figure 2). This shows covid saving buffers are rapidly being depleted. Consumer loan delinquency rates have also been trending upwards as rising interest rates are having increasing effect.
A softening labor market could also weigh on consumers. The unemployment rate reached 4.1% in June, up from 3.7% in January. Job openings have also been on a declining path. This labor market trend is likely to put downward pressure on disposable income growth. Though these elements are not yet affecting hard data, consumer sentiment indicators have turned south in the last months. The University of Michigan Consumer Sentiment Index declined from 79.4 in March to 66.4 in July.
Conclusion
Though the US Q2 GDP figure was impressive, softer readings are likely in the coming quarters. One-off elements, i.e. high inventory growth and airline deliveries, embellished the figure markedly. Furthermore, consumers spending is likely to soften as the labor market is untightening and saving buffers are being depleted.