The latest US GDP numbers are in, and it’s a tale of two economies! While growth got a slight bump, what’s really happening with your spending and corporate profits? We dive deep into whether this is a market correction or a new normal. What’s your take on where the economy is headed?
Recent economic data reveals the U.S. economy is recalibrating, with the second estimate for Q2 GDP growth revising upwards to a robust 3.3%. This adjustment signals a significant economic shift, as the nation’s financial landscape appears to be settling back towards its long-term historical trajectory, prompting a closer look at underlying US Economy dynamics.
The latest revision, climbing from an initial 3.0% estimate, nudges quarterly GDP Growth slightly above the historical average of 3.2%. While seemingly a positive indicator, much of this expansion remains influenced by robust imports, a factor widely recognized as unsustainable for enduring economic health. This highlights a nuanced picture of expansion rather than unbridled acceleration.
A key driver behind this upward revision in the GDP Growth was a notable surge in business investments. Initially contributing a modest +0.27%, business investments saw their impact revised significantly to +0.78% in the updated figures, demonstrating a renewed, albeit cautious, confidence within the corporate sector to allocate capital.
Despite the headline GDP Growth, real Consumer Spending, which constitutes roughly 70% of the US Economy, continues to exhibit signs of underlying weakness. This marks the second consecutive quarter where consumer expenditures have grown below their historical average, reflecting prevalent anxieties among households regarding future inflation and recent softening in the labor market.
Analyzing year-over-year data for Consumer Spending provides a broader perspective, suggesting that the recent deceleration may not signal a new detrimental trend but rather a natural reversion to the mean. With an annual growth rate hovering around 2.4%, it closely aligns with the historical average of 2.31%, indicating a stabilization rather than a dramatic downturn.
Shifting focus to Corporate Profits, the economy-wide increase of $65 billion in Q2 (+1.7%) offers a mixed signal, still falling short of the record highs observed in Q4 2024. This divergence underscores a critical distinction: the stock market is not a perfect proxy for the overall US Economy, as S&P 500 profits, propelled by AI-driven spending, are currently expanding at a robust 10% pace.
Speaking of AI-driven spending, the recent earnings report from NVIDIA provided further insights into this sector. While the tech giant surpassed both sales and EPS expectations, the beat rate for these metrics was the lowest since the AI boom commenced. Crucially, it marked the first instance where NVIDIA’s sales and EPS beat rates fell below the S&P 500 average, hinting at potential shifts in market expectations.
In conclusion, the US Economy appears to be decelerating, yet this slowdown largely represents a return to its long-term historical average, rather than a precipitous decline. While downside risks, including the possibility of a recession, have marginally increased, they remain within manageable bounds. Investor confidence, as indicated by corporate credit spreads, which are well below historical averages, suggests an optimistic outlook regarding companies’ abilities to meet profit forecasts.
