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PNC National Economic Outlook
July 2024
Solid Growth in Second Quarter, Even as Inflation Slows; Consumer Spending Is Doing Well in Mid-2024
The U.S. economy expanded 2.8% at an annual rate in the second quarter of 2024, according to the advance estimate of real GDP from the Bureau of Economic Analysis. This followed an increase of 1.4% in the first quarter. Real GDP has increased by 2% or more in seven of the past eight quarters as the U.S. economy continues to lead the developed world in the recovery from the Viral Recession.
On a year-ago basis real GDP growth was a strong 3.1%. The increase in second quarter GDP was broad-based. Consumer spending rose 2.3% at an annual rate, adding 1.6 percentage points to growth. Business fixed investment rose more than 5%, adding 0.7 percentage point to growth. Inventories added 0.8 percentage point to growth, after subtracting from growth in each of the two previous quarters.
Government spending rose more than 3%, adding 0.5 percentage point to growth. Trade was a drag for a second straight quarter, subtracting 0.7 percentage point from growth, as imports rose more than exports; imports surged as U.S. consumers and businesses purchased from abroad, and higher imports reduce GDP.
Residential investment (housing) was a slight negative for growth; this was the first contraction in residential investment in a year. The GDP release came after PNC had prepared its July baseline forecast.
Although growth was strong in the second quarter, inflation is slowing. The personal consumption expenditures price index rose a scant 0.1% in June, after no increase in May. The core PCE price index, the Federal Reserve’s preferred inflation measure, rose 0.2% over the month, slightly more than the 0.1% increase in May.
On a year-ago basis overall PCE inflation slowed to 2.5% in June from 2.6% in May, and a peak of more than 7% in mid-2022. The core PCE price index was unchanged in June from May at 2.6%, and down from above 3% in November 2023. Inflation has slowed over the past couple of months after little progress on earlier in the year.
Retail sales were essentially unchanged in June from May (down less than 0.1%). This followed an increase of 0.3% in May (revised higher from 0.1%). The soft headline number was due to big drops in gasoline sales (down 3.0%) from lower prices, and auto sales (down 2.0%) from the CDK Global cyberattack that disrupted operations at many auto dealerships.
Retail sales excluding autos were up 0.4%, and sales were up 0.8% excluding autos and gasoline. Control sales—sales excluding food service, autos, gasoline, and building materials, and which go into nominal consumer spending in GDP—rose a strong 0.9% in June.
Consumers remain in good shape in mid-2024. Job growth has slowed somewhat but remains solid, wages continue to increase, inflation has slowed, and household wealth is increasing thanks to a strong stock market and rising home values, although high interest rates are a drag.
