Personal consumption revised upwards in Q2 as consumer spending remains strong, while home price growth appears to have slowed

Key Takeaways:

• Gross domestic product (GDP), adjusted for inflation, rose 3.0 percent annualized in Q2 2024, according to the second estimate from the Bureau of Economic Analysis, an upgrade of two-tenths from the preliminary estimate. The second estimate of GDP saw downward revisions to business fixed investment, residential fixed investment, and government consumption, but a strong upward revision to personal consumption. Personal consumption was revised upwards by six-tenths to 2.9 percent annualized. Real final sales to private domestic purchasers, sometimes referred to as core GDP, was upgraded three-tenths to a very solid pace of 2.9% annualized, up slightly from the first quarter. Gross Domestic Income (GDI), a measure that is theoretically equivalent to GDP but can differ due to measurement error, increased at a 1.3 percent annualized rate in Q2, the same as in Q1.
• Durable goods orders jumped 9.9 percent in July, according to the Census Bureau, the largest monthly increase since July 2020. This increase was driven entirely by a surge in aircraft orders. Excluding transportation, new orders fell 0.2 percent. Shipments of durable goods rose 1.1 percent, while shipments of “core” capital goods (nondefense excluding aircraft) fell 0.4 percent.
• The Conference Board Consumer Confidence Index rose 1.4 points in July to 103.3, the highest reading since February. Confidence in the present situation rose 1.3 points to 134.4. Expectations for the future also increased, rising 1.4 points to 82.5, the highest reading since August 2023.
• The National Association of REALTORS® Pending Home Sales Index, which records contract signings of existing homes and typically leads closings by one to two months, fell 5.5 percent to 70.2 in July, a record low.
• The FHFA Purchase-Only House Price Index (FHFA HPI), reported on a seasonally adjusted basis, fell by 0.1 percent in June. The index rose 5.1 percent from a year ago, a deceleration of five-tenths from last month, and the slowest pace since July 2023. The S&P CoreLogic Case-Shiller National Home Price Index (S&P CoreLogic HPI) (not seasonally adjusted) rose 0.5 percent in June. From a year ago, the index rose 5.4 percent, a deceleration of five-tenths, the slowest pace since November 2023.

Forecast Impact:

The upward revision to both Q2 GDP and “core GDP” presents some further upside risk to our 2024-year total growth forecast, as consumption continues to appear robust. We continue to expect some pullback in consumer spending as real disposable incomes has lagged real consumption. However, a further potential boon to consumer spending is the recent decline in interest rates and the likelihood of rate cuts from the Federal Reserve. This could offer support to future consumption growth, particularly in rate sensitive sectors like auto sales. One slightly negative sign for GDP is the decline in shipments of “core” capital goods in July. If sustained, this could suggest weaker business investment in the third quarter.

In housing, the decline in pending sales in July poses some downside risk to our existing home sales outlook, however the recent decline in mortgage rates will likely help to offset some of the affordability pressures which weighed on sales in July. Home prices remain elevated, though the June reading of the FHFA HPI showed a slight decline month-over-month, which if sustained would suggest that the lack of affordability may be weighing on home prices. While both the FHFA and the S&P CoreLogic HPIs showed strong price growth from a year ago, they both showed a significant deceleration in year-over-year growth in June, matching our view that home price growth should slow over the coming months as the market looks for balance given a lack of affordability and rising inventories.

Richard Goyette
Economic and Strategic Research Group
August 29, 2024

Opinions, analyses, estimates, forecasts, beliefs, and other views of Fannie Mae's Economic & Strategic Research (ESR) Group included in these materials should not be construed as indicating Fannie Mae's business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although the ESR Group bases its opinions, analyses, estimates, forecasts, beliefs, and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current, or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts, beliefs, and other views published by the ESR Group represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.