Better Than Expected US GDP but There Is Cause for Concern in the Details

• Personal consumption Q2 4.3% vs 4.0% expected (fastest increase since Q2 2017)
• Personal consumption Q1 revised to 1.1% from 0.9%
• Consumer spending on durable goods 12.9% vs +0.3% previous
• Consumption added 2.85 pp to GDP
• Business investment -0.6% vs +4.4% prior (first contraction since 2016)
• Home investment -1.5% (6th consecutive contraction)
• Gross private investment cut 1.0 pp from GDP
• Exports -5.2%
• Imports 0.1%
• Trade subtracts 0.65 pp from GDP
• Inventories +$71.7B (cuts 0.88 pp from GDP)
• Government consumption adds 0.85 pp to GDP

Inflation:

• GDP price index Q2 2.4% vs 2.0% expected
• Prior GDP price index Q1 revised to 1.1% from 0.9%
• Core PCE Q2 1.8% vs 2.0% expected
• Prior core PCE revised to 1.1% from 1.2%
• GDP deflator +2.5%

You can see that there are as many red numbers as they are green in the details of the GDP report. Inventories and trade didn’t drag the GDP down as much as expected, while consumption was pretty strong. Housing remains quite soft and business investment looks concerning. Overall, the report was a bit better than expected but there are certain areas of concern. This report doesn’t change anything for the FED. The USD only climbed around 15 pips after the release.