Surprising Q2 GDP Growth and Its Impact on the Economy | Episode 158 | 07-19-24

Can the latest GDP report signal a turning point for the economy? Join Megan as she dissects the surprising 2.8% GDP growth for the second quarter, a stark improvement from the previous quarter’s 1.4%. Understand how personal consumption, especially in services and auto spending, has been a major driver of this growth. It's a quick analysis of the AI boom's contribution to equipment spending and what the decline in residential spending implies for the housing market.

And that’s not all—our discussion wouldn't be complete without examining the critical role of government spending, its impact on the GDP, and the implications for the Federal Reserve's next moves. As we anticipate the pivotal unemployment report in early August, today’s jobless claims offer some hints about the labor market's health. Tune in for these essential insights, and don’t forget to like, share, and visit MarketsWithMegan.fm for more data-driven economic analysis.

Well, it was a big upward surprise here on the GDP report we got. Today. It is Thursday, July 25th, and this is your regular segment of Markets with Megan. We got the second quarter reading on GDP and remember, this is the advanced reading. This will get revised multiple times before we get a final reading, but the report came in much better than expected. Gdp grew 2.8% in the second quarter, that's after a 1.4% in the first quarter.

Now, digging down into this, some of the other details that we look at, personal consumption was better than expected, up 2.3% after only being up 1.5% in the first quarter. When you look at the inflation components, though, let's look at that core price index that came in a little bit higher than expected 2.9% for the quarter. It is much better than the first quarter when we got that surprise jump at 3.7%, but it is a bit stronger than what was expected. So let's dig into some of the details here within this report, and when we look at the biggest contributions to this, we can see that we had, first of all, the consumer. We know that's the biggest part of GDP. The consumer contributed a significant amount to this, and it was actually on services. We know that we spent a lot on services, but there was a big jump in autos as well. So personal consumption contributed quite a bit. But digging down into some of the other details, you can see the AI portion of this where we saw a big increase in equipment spending and that's most likely from the AI boom we've seen here, especially info processing. We saw a detraction in residential spending and we know that Now that the housing numbers have been very weak. When you look at inventories, we had an inventory contraction in the first quarter and typically when you see that, you'll see an inventory rebuild in the following quarter. So we did get an increase in inventories, which helped GDP.

And then we cannot forget which most people don't mention but the government spending. Government spending again was a big contribution to GDP and this is concerning because we often talk about the debt and we need to see some kind of reining in in this government spending because the deficit just continues to get worse. So what does all of this mean? First of all, I think it takes a July rate cut completely off the table. This gives the Fed the flexibility to say hey, gdp is still growing about trend Inflation is still not exactly where we want it to be. We need some more data points to confirm to us that inflation is coming down.

September is still on the table, but we are going to get a lot more information between now and then that may either solidify that rate cut in September or push it out further into the fourth quarter. The most important thing that we're going to be looking at is the unemployment report that we'll get in the beginning of August. That will tell us whether or not that Fed can actually go in September. We'll see what kind of weakness that we see there. Jobless claims today. They weren't awful, so we'll wait and see what we get from that unemployment report. That's all that we have today. We'll be back tomorrow with some more economic data. And again, please like and share with your friends this podcast and if you'd like to see other podcasts, please go to marketswithmegan. fm. Thank you.