Investing News

The U.S. Bureau of Economic Analysis (BEA) revised its Gross Domestic Product (GDP) estimate on July 29, posting an increase of 6.5% in the second quarter of 2021, slightly above its revised first quarter estimate of 6.3%. Though the number fell short of forecasts at 8.4%, the rate continued to surpass pre-pandemic levels and was the second-largest increase since 2003, propelled by an uptick in consumer spending as the economy reopens. 

Consumer Spending Rises

Consumer spending was the biggest contributor to growth, accounting for more than two-thirds of the increase. Personal consumption expenditures (PCE) rose 11.8% as of June, and in another sign that Americans are shopping more, the report showed that the savings rate fell to 10.9% from 20.8%. 

The latest reading showed a noteworthy shift in consumer spending from goods to services, boosted by the loosening of COVID-19 restrictions and the vaccine rollout. Food services and accommodations, like restaurants and travel-related services, led increases in personal expenditures, followed by goods. Nondurable goods, and particularly pharmaceutical products, gained the most within the goods category. 

Growing Private Sector Investments In Technology And Equipment

The report also showed that businesses raised investments in technology and equipment, and intellectual property like research and development (R&D), indicating their optimism for the health of the economy.

However, residential construction lagged, falling 9.8% as higher inflation and supply shortages bit into builders’ and buyers’ budgets, holding back gains along with federal government spending, which was lower than expected. 

Government Spending Shortfall

Nondefense federal government spending on goods and services declined 10.4% in the second quarter, short of earlier estimates despite an increase in the budget deficit. Paycheck Protection Program (PPP) loan applications by banks on behalf of the federal government also decreased.

Federal Reserve
Chair Jerome Powell noted in a press conference the day prior that while the economy has made substantial progress, there is still “some ground to cover” before reaching a full recovery to pre-pandemic levels.

Additional reporting by Kara Greenberg.