GDP Beats Expectations in the Second Quarter, While June Home Sales Decline

Key Takeaways:

• Gross domestic product, adjusted for inflation, increased at a 2.8 percent seasonally adjusted annualized rate (SAAR) in Q2 2024, double the growth rate in the first quarter, according to the Bureau of Economic Analysis (BEA). Real personal consumption expenditures (PCE) grew at a 2.3 percent annualized rate, an acceleration of eight-tenths compared to the first quarter. Business fixed investment grew at a robust 5.2 percent annualized rate due to a surge in equipment spending, while residential fixed investment declined at a 1.4 percent annualized rate. Private inventory investment and government spending, which have been volatile in recent quarters, added 0.8 and 0.5 percentage points to GDP, respectively, while net exports dragged. Real final sales to private domestic purchasers, sometimes referred to as core GDP, grew at a 2.6 percent annualized rate, the same as in the first quarter.
• Personal income, adjusted for inflation, increased 0.1 percent in June but was revised downward modestly in May, according to the BEA. Real disposable personal income was also up 0.1 percent. Real personal consumption expenditures increased 0.2 percent. The PCE price index increased 0.1 percent over the month and was up 2.5 percent compared to a year prior. Core PCE inflation increased 0.2 percent (0.18 percent before rounding), leaving the annual comparison unchanged at 2.6 percent.
• Existing home sales declined 5.4 percent to a SAAR of 3.89 million, the lowest level since December, according to the National Association of REALTORS® (NAR). The number of homes available on the market rose 3.1 percent to 1.32 million, the highest level since October 2020. The months’ supply increased four-tenths to 4.1, the highest level since the onset of the pandemic. Compared to a year ago, NAR’s measure of the median sales price of existing homes rose 4.1 percent.
• New single-family home sales declined 0.6 percent to a SAAR of 617,000 in June, though the figures for April and May were revised upward, according to the Census Bureau. The number of new homes available for sale moved up 0.8 percent to 476,000, still the highest level since the Great Financial Crisis. The months’ supply moved up two-tenths to 9.3, as the median and average sales price of new homes has remained roughly flat over the past 15 months.

Forecast Impact:

GDP grew at a faster rate than both consensus and our expectations, suggesting the economy remains stronger than previously thought. This report presents some upside risk to our growth forecast for the rest of 2024 given that personal consumption growth picked up toward the end of the second quarter, which will benefit the third quarter estimate. Still, real disposable incomes grew at a much slower rate than consumption, so we continue to believe the current pace of spending is likely unsustainable. On the inflation front, we have previously stated that the Fed will likely need several good inflation reports before being confident enough to cut rates, and the PCE inflation report largely fits that bill. While the stronger-than-expected GDP print means the Fed doesn’t need to rush into an easing cycle, we think we’re still on track for a September rate cut.

Existing home sales were in line with our forecast. Mortgage rates peaked most recently in the beginning of May at 7.22 percent, around when many of these June home sales would have locked in rates. Rates have since dropped 44 basis points to 6.78 percent as of the most recent reading, which is supportive of our forecast for a gradual increase in home sales through the end of the year. New sales, considering upward revisions to prior months, were a bit above our second quarter forecast. Despite the small forecast beat, we continue to think the new home market has slowed as evidenced by still-increasing inventories of homes available for sale. As such, we continue to see near-term headwinds for the new home market but view the intermediate- to longer-term outlook as more robust given strong homebuilder balance sheets and a nationwide shortage of housing.

Nathaniel Drake
Economic and Strategic Research Group
July 26, 2024

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