Economic growth exceeded expectation in Q2

Wells Fargo Research Team Wells Fargo

Summary

The economy expanded at a 2.8% annualized rate in the second quarter. While that handily exceeded expectations, we suspect that it may be the fastest GDP growth rate we are apt to see for the foreseeable future.

Coming in hot

The economy picked up speed in the second quarter as GDP growth came in at 2.8% which was double the 1.4% rate in the first quarter (chart). The composition of growth was broadly based at least in terms of domestic demand.

Business fixed investment was sturdy as well although the composition of spending went in different directions. Outlays on structures contracted at a 3.3% annualized rate, giving back almost all the first quarter gains. But intellectual property spending extended its run of increases growing at a 4.5% clip in the quarter.

The fastest growth within business fixed investment came from equipment spending which grew at a blistering 11.6% annualized rate (chart). That is the biggest gain in equipment outlays since the first quarter of 2022. That is hard to reconcile with lackluster orders data and wilting business sentiment. A look at the underlying components lends some perspective. Most of the gain in equipment came from transportation and information processing. Firms actually cut back on industrial equipment during the quarter and “other” equipment outlays were essentially flat.

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Wells Fargo Research Team

Wells Fargo

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