Consumer Spending Outpaces War Headwinds to Fuel 1.5% GDP Growth

Real gross domestic product (GDP) growth slowed in the second quarter, according to an advance estimatereleased Thursday (July 30) by the Commerce Department’s Bureau of Economic Analysis.

Real GDP increased at an annual rate of 1.5% in the second quarter, down from an increase of 2.1% in the first quarter, according to the release.

First quarter growth was driven by increases in consumer spending, investment and exports. These gains were partially offset by a decrease in government spending and an increase in imports, per the release.

“Compared to the first quarter, the deceleration in real GDP in the second quarter reflected a downturn in government spending and decelerations in investment and exports that were partially offset by an acceleration in consumer spending,” the BEA said in the release. “Imports increased more in the second quarter than in the first quarter.”

Highlighting categories that contributed to the increase in consumer spending during the second quarter, BEA pointed to nondurable goods, especially prescription drugs; motor vehicles and parts, led by light trucks; furnishings and durable household equipment, led by furniture; food services and accommodations; financial services and insurance, led by portfolio management; and nonprofits, led by professional advocacy.

Bloomberg reported Thursday that the 3.2% growth rate of consumer spending was stronger than expected. The report said the figures released by the BEA show that the economy is “powering through” the higher prices and lower sentiment caused by the Iran war.

“Beneath the softer GDP headline, domestic demand remained resilient in the second quarter,” Eliza Winger of Bloomberg Economics said in the report. “Consumer spending rebounded strongly — easing concerns about a consumer-led slowdown — even as gasoline prices surged during much of the quarter. Business investment in equipment remained robust, broadening beyond AI-related spending.”

Reuters reported Thursday that the BEA data showed that the economy “largely weathered” the impact of the war, though renewed hostilities have created heightened risk for the rest of the year. The report said consumer spending in the second quarter was supported by larger tax refunds delivered during the first quarter, growth in asset prices, the FIFA World Cup and nonprofits’ spending on the midterm elections.

The July edition of the PYMNTS Consumer Expectations Index, “The Confidence Divide: Why Americans Trust the Economy More Than Their Paychecks,” found that consumer confidence rose to 55.6 in July, driven by a monthly 4.1-point jump in household perceptions of the U.S. macroeconomic and buying climate.