Real GDP (Q2-2025, second estimate)

Q2 GDP revised higher to 3.3% 

• The second estimate of Q2 real GDP was revised higher by 0.3 percentage points to 3.3% quarter/quarter annualized (q/q) – a sharp acceleration from Q1's contraction of 0.5%. 
  
  • The upward revision primarily reflected stronger investment and consumer spending relative to the advance estimate, which was partly offset by a downward revision to government spending and a larger gain in imports. 
• Consumer spending rose 1.6% q/q (previously 1.4%), up from Q1's gain of 0.5%. Spending on both goods (2.4% previously reported as 1.0%) and services (1.2% previously 1.0%) were revised higher. 
• Non-residential fixed investment rose 5.7% q/q (previously 2.4%), building on a very strong first quarter – largely driven by firm front-running capital spending ahead of the tariffs. In terms of the breakdown, both equipment (7.4% q/q) and intellectual property products (12.8% q/q) were higher, while spending on structures (-8.9% q/q) declined for a second consecutive quarter. 
• Residential investment declined 4.7% q/q, as homebuilding reached a new cyclical low in the quarter, while home sales trended lower. 
• Government spending declined a modest 0.2% (previously +0.5%) , as an uptick in state & local spending (+2.6%) was more than offset by a pullback at the federal level (-4.7% q/q). 
• As was the case in Q1, international trade was a major factor influencing growth last quarter. Imports plummeted by 29.8% q/q – following a gain of 38.0% q/q in Q1. Meanwhile, exports contracted by a more modest 1.3% q/q, resulting in net trade adding 5.0 percentage points (pp) to Q2 GDP. Meanwhile, inventory investment subtracted 3.3pp from headline growth.  
• Final sales to private domestic purchasers, a better gauge of underlying demand as it includes only household consumption and fixed investment, was revised up to 1.9% (previously 1.2%), matching Q1's gain. 
• Real Gross Domestic Income (GDI) – an alternative measure of economic output – rose 4.8% in Q2, up from Q1's modest contraction of 0.2%. Corporate profits rose 6.8% annualized or $65 billion after accounting for inventory valuation and capital consumption adjustments. Personal income was up a healthy 5.2% in Q2.

Key Implications

• The Bureau of Economic Analysis' second read on Q2 GDP resulted in minor upward revisions, with top-line growth now showing an even stronger 3-handle. While the headline figure was inflated by a massive swing in trade – stemming from an unwinding of Q1's tariff front-running – the upward revisions to consumer spending and business investment suggest that the domestic side of the economy is holding up a bit better than previously reported. This is further corroborated by the solid reading on GDI. 
• A rebound in vehicle sales in July alongside a decent uptick in retail sales (ex. autos) suggests goods spending picked up last month, but it’s spending on services that has remained especially weak this year. Tomorrow's release of personal income & spending will shed light on whether this trend has continued into the third quarter. With measures of consumer confidence having turned lower and the labor market showing signs of weakness, we suspect households will remain fiscally cautious in the months ahead. Our current tracking has Q3 GDP growing by just 1%.

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