Final Estimate of US Q2-2024 GDP stable at 3.0%

27 Sep 2024 , 09:44 AM

US Q2-2024 GDP GROWTH FINAL ESTIMATE STEADY AT 3.0%

The second advance estimate of US GDP for the second quarter of 2024 had been upgraded by the US Bureau of Economic Analysis (BEA) by 20 bps from 2.8% to 3.0%. The final estimate of Q2 GDP presented on September 26, 2024 has held the second quarter GDP growth steady at 3.0%. It may be recollected that the GDP growth had dipped to 1.4% in the first quarter ended March 2024. In comparison, the second quarter final estimate has more than doubled to 3.0%. That should come as a sharp rejoinder for sceptics screaming about the US economy hard landing. The final estimate of Q2 GDP at 3.0% is an affirmation of the fact that the US economy is nowhere close to the risk of a hard landing. But what is also relevant is that some of the past data points have also been revised with updated data coming in. Here we look at the data for the latest four quarters.

Let us start with the Q3-2023 GDP growth. Originally, this quarter had reported one of the best growth rates in GDP at 4.9%. However, in the revised estimates, the GDP growth for Q3-2023 has been downsized by 50 bps to 4.4%. Let us turn to the Q4-2023 GDP growth. Originally, this quarter had reported at 3.4%. However, in the revised estimates, the GDP growth for Q4-2023 has been downsized by 20 bps to 3.2%. Finally, we turn to the Q1-2024 GDP growth. Originally, this quarter had reported very low growth rates in GDP at 1.4%. However, in the revised estimates, the GDP growth for Q1-2.24 has been upgraded by 20 bps to 1.6%. While the fall is still sharp in the first quarter, the overall GDP trend now looks more like a steady progression, rather than erratic set of numbers.

HOW US Q2-2024 GDP GROWTH EVOLVED OVER THE 3 ESTIMATES?

The table below captures the shift between the advance estimate, the second estimate, and the final estimate of Q2 GDP for the calendar year 2024.

Macro Variable	Q2 – Advance Estimate	Q2 – Second Estimate	Q2 – Final Estimate
Real GDP Growth	2.8%	3.0%	3.0%
Current Dollar GDP Growth	5.2%	5.5%	5.6%
PCE Price Index	2.6%	2.5%	2.5%
Core PCE Index	2.9%	2.8%	2.8%

Data Source: US Bureau of Economic Analysis (BEA)

The real GDP growth for the second quarter (annualized rate) was kept stead at 3.0% in the final estimate after it was upgraded by 20 bps in the second estimate. The current dollar nominal GDP growth, which had been upgraded by 30 bps in the second estimate from 5.2% to 5.5%, has been further upscaled by 10 bps to 5.6% in the final estimate. The PCE price index underlying the real growth and the core PCE price index were kept steady.

DISSECTING THE Q2 2024 US GDP GROWTH  – FINAL ESTIMATE

With the final estimate of Q2-2024 GDP out, the GDP has been maintained steady at 3.0%. The table below captures how the GDP and its key components have trended over the last 6 quarters. The table non only captures the trend in real GDP growth, but also the underlying factors that triggered this shift. The first advance estimate of Q2-2024 GDP growth had come in at 2.8%, which in itself was 140 bps higher than the final Q1 figure. However, the second estimate of Q2-2024 GDP has further upgraded the GDP growth estimate by 20 bps to 3.0%; and the third estimate had kept it steady at 3.0%. In the US, each quarter GDP data goes through 3 estimates; evolving as more data flows come in.  Here is a quick dekko.

GDP Data	Q1-2023 YOY (%)	Q2-2023 YOY (%)	Q3-2023 YOY (%)	Q4-2023 YOY (%)	Q1-2024 YOY (%)	Q2-2024 YOY (%) #
GDP Overall	2.8	2.4	4.4	3.2	1.6	3.0
GDP – Goods	0.3	1.6	7.1	2.5	-3.6	5.2
GDP-Services	3.9	1.7	2.5	2.8	3.2	2.4
Structures	4.4	11.2	7.5	8.6	9.9	-0.6
Auto O/P	24.6	13.3	-8.2	-19.0	3.4	20.2
GDP Ex-Auto	2.2	2.2	4.7	3.9	1.6	2.6
Non-farm GVA	2.5	2.4	5.0	3.4	1.3	3.0
Goods Share	0.1	0.5	2.2	0.8	-1.1	1.6
Services Share	2.3	1.0	1.5	1.7	1.9	1.5

Data Source: US Bureau of Economic Analysis (BEA) – # Second Estimates

What exactly has led to a sharp spike in the GDP growth in Q2-2024 to 3.0% (second estimate), as compared  to a relatively tepid 1.6% (revised) in the sequential first quarter.

• The growth in GDP for physical goods bounced back sharply to 5.2% from a deeply negative -3.6% in the first quarter. In the previous 2 sequential quarters, this figure had been +2.5% and -3.6%. The increase in GDP reflected increase in services and goods. Under services, the thrust came from healthcare, transportation, housing, and utilities. Under the goods header, the thrust came from motor vehicles, auto parts, furnishings, and durable household equipment.
• GDP Services continued to be in the positive as it witnessed limited global impact. GDP Services for Q2-2024 stood at 2.4% as compared to 3.2% in the sequential previous quarter and 2.8% before that. Clearly, the momentum in services appears to have slowed down in the second quarter compared to the previous three quarters, but that is only understandable amidst all the geopolitical strife, the Red Sea crisis, and a general slowdown in global trade.
• The auto output turned around to 20.2% as of the third and final estimate, lower than 26.4% in the second estimate, and 28.5% in the first advance estimate. Auto output had been in the negative zone for 3 previous quarters in a row. Since the turnaround was rapid, we saw a sharp adjustment in the second estimate and the third estimates. But, it is good that autos are picking up as they represent a mix of industrial and consumer demand in the US economy.
• The non-farm GVA (gross value added) rose by 3.0% in Q2-2024 as per the final estimate. That is 50 bps lower than the figure in the second advance estimate. However, the non-farm GVA is still lower compared to the third and fourth quarters of the previous year 2023. However, if you compare the second quarter of 2024 with the first quarter of 2024, then the rebound is simply unmissable.
• Finally, let us look at the last two rows, which capture the contribution of goods and services to the change in GDP. In Q1-2024, goods had made a negative contribution while services was in the positive, which led to the tepid growth in first quarter GDP. However, the second quarter has seen GDP in goods turn around to positive while the services output remains steady in the positive zone. As per the third and final estimate, both goods and services each contributed roughly half of the 3.0% GDP growth in the second quarter; with goods output have a very marginal edge.

Let us now turn to how the personal incomes shaped in Q2-2024; final estimates.

HOW PERSONAL INCOMES SHAPED IN Q2 (FINAL ESTIMATE)

How did the personal incomes compare as per the final estimate for Q2, as compared to the second estimate of Q2? Let us start with the macro picture of current dollar GDP (nominal GDP), which increased by 5.6% or by $392.6 Billion to $29.02 Trillion, as per the third and final estimate of Q2 GDP. This is, effectively, an upward revision of $9.5 Billion compared to the second estimate of GDP.

Let us now turn to the current-dollar personal income (nominal terms), which saw an absolutely accretion of $315.7 Billion in the final estimate of Q2. This is a strong upward revision of $82.1 Billion compared to the second estimate. The increase in current dollar personal income reflected increases in compensation and personal current transfer receipts.

Let us now move to the disposable personal income (DPI). For Q2-2024 (final estimate), the DPI increased by $260.4 Billion (+5.0%). That is a healthy upward revision of $77.3 Billion compared to the second estimate put out in end-August. Real Disposable Personal Income increased by 2.4%, which is an upward revision of 140 bps compared to the last estimate.

The personal savings in the final estimate for Q2-2024 stood at $1.13 Trillion. This is an upward revision of $74.3 Billion compared to the second estimate. The personal savings rate (as measured by personal savings as a share of DPI), was 5.2% as per the final estimate of Q2-2024 GDP, as compared to 5.4% in the first quarter estimates of GDP.

HOW CORPORATE PROFITS PANNED OUT IN THE SECOND QUARTER

Here is a quick update on how the corporate profits of American companies panned out in the second quarter ended June 2024. The profits from current production (corporate profits with inventory valuation and capital consumption adjustments) showed an increase of $132.5 Billion in the second quarter of 2024. This is as sharp upward revision of $74.9 Billion from the second estimate. It may be recollected, that the current production had actually fallen by $47.1 Billion in the first quarter of 2024, so the sequential growth is magnified. Let us now break up the performance of domestic and global businesses of US corporates.

The profits of domestic financial corporations increased $42.5 Billion in Q2-2024, a downward revision of $4.0 Billion compared to the second estimate. This is also lower compared with an increase of $65.0 Billion in the first quarter of calendar 2024. At the same time, the profits of domestic nonfinancial corporations increased $108.8 Billion, which is an upward revision by $79.6 Billion. There is a clear revival in corporate performance in Q2. Rest of the world (ROW) profits decreased by $18.8 Billion, a downward revision of $0.7 Billion compared to the previous estimates. In the second quarter, receipts increased by $4.4 Billion, and payments increased $23.1 Billion. Overall, it has been a gratifying corporate season for US corporates.

HOW CME FEDWATCH REACTED TO Q2-GDP FINAL ESTIMATES

The CME Fedwatch captures the probability of rate cuts over the next one year based on the prices at which the Fed Futures are traded. This is a market-based look at the future trajectory of interest rates. Here are the CME Fedwatch probabilities.

Fed Meet	200-225 #	225-250	250-275	275-300	300-325	325-350	350-375	375-400	400-425	425-450	450-475
Nov-24	Nil	Nil	Nil	Nil	Nil	Nil	Nil	Nil	Nil	51.4%	48.6%
Dec-24	Nil	Nil	Nil	Nil	Nil	Nil	Nil	22.9%	50.2%	27.0%	Nil
Jan-25	Nil	Nil	Nil	Nil	Nil	6.0%	30.0%	44.1%	19.9%	Nil	Nil
Mar-25	Nil	Nil	Nil	1.1%	10.3%	32.5%	39.8%	16.3%	Nil	Nil	Nil
May-25	Nil	Nil	0.9%	8.5%	28.1%	38.3%	21.0%	3.3%	Nil	Nil	Nil
Jun-25	Nil	0.6%	5.8%	21.2%	34.7%	27.1%	9.5%	1.1%	Nil	Nil	Nil
Jul-25	0.2%	2.3%	10.9%	25.7%	32.2%	21.3%	6.7%	0.8%	Nil	Nil	Nil
Sep-25	0.7%	4.5%	14.7%	27.4%	29.4%	17.5%	5.2%	0.6%	Nil	Nil	Nil
Oct-25	1.5%	6.1%	16.6%	27.6%	27.5%	15.7%	4.5%	0.5%	Nil	Nil	Nil
Dec-25	2.0%	7.0%	17.6%	27.6%	26.5%	14.7%	4.2%	0.4%	Nil	Nil	Nil

Data source: CME Fedwatch (# – lower probabilities consolidated)

Here is a quick dekko at how the rate cut probabilities have panned out after the GDP final estimate for Q2-2024.

• With the September rate cut of 50 bps done and dusted, the focus shifts to November and December FOMC meets. The CME Fedwatch assigned a probability of 100% to 25 bps rate cuts and 51.4% probability to another 50 bps rate cut by November 2024.
• Let us look at the first milestone of December 2024. By then, another 50 bps rate cut (100 bps in all) is fait accompli. Also, there is a probability of 73.0% for an additional 75 bps rate cut. So, it could either be a total rate cut of 100 bps or 125 bps in all by end of year 2024; as it appears today.
• Probabilities beyond 2024 are still evolving and will offer more clarity once the current year action crystallizes. Let us look at June 2025. The CME Fedwatch is assigning 98.9% probability for 175 bps rate cuts from the peak and 89.4% chance for 200 bps rate cuts from the peak by June 2025.
• Let us come to the final milestone of December 2025. At this point, the CME Fedwatch is estimating 95.4% probability for 200 bps of rate cuts from the peak and a high probability of 80.7% for 225 bps of rate cuts by December 2025. There is a 54.2% probability that the Fed could close year 2025 having cut rates by a full 250 bps from peak and moved to (2.75%-3.00%).

Will the Fed adhere to such an aggressive tune? The growth figure will raise some questions about the extent of dovishness that is warranted.

WHERE IS THE HARD LANDING?

While giving a dissenting vote to the 50 bps rate cut by the Fed, governor Michelle Bowman preferred cutting rates by just 25 bps in the September 18 monetary policy meeting. According to Bowman, there were two problems with a 50 bps rate cut. Firstly, it gave a message that the Fed had won its battle against inflation, which was still about 50 to 60 bps away. Secondly, according to Bowman, a 50 bps rate cut is tantamount to admitting that there is an economic slowdown in the US. Both of these allusions are untrue.

The rate cut path adopted by the Fed is a lot more aggressive than expected it almost appears to be falling in line with the CME Fedwatch expectations. The Fed had cited control over inflation and risks to growth as the reasons for cutting rates aggressively. The latest quarter final estimate of GDP growth has come in at 3.0%, which is nearly twice the growth in the first quarter. It is almost at par with the revised Q4-2023 GDP growth, so expecting a hard landing from here would be a lot of wishful thinking. If growth continues to pick-up, the Fed may have a tough time explaining the dovish aggression of the Federal Reserve.