Kiplinger's GDP Outlook: Q2 GDP Growth Should Pick Up to 2%

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Second-quarter GDP growth (which will be released on July 25) will likely run about 2.0%, a pickup from 1.3% in the first quarter. Consumer spending is still likely to be decent, though it is probably rising slower than last year. Exports should start growing again after a drop in the first quarter, and businesses are likely to stop cutting inventories as prospects for future sales brighten.

First-quarter growth of 1.3% isn’t as bad as it looks, either. First, the economy had exceeded its speed limit in the third and fourth quarters last year, so a slowing was expected. Goods spending, for example, had been on a tear and couldn’t keep up that pace for long. Second, most of the reason for the slowdown from the fourth quarter’s 3.4% GDP expansion was that imports picked up, which happens when domestic demand is strong. (When imports rise, that subtracts from GDP growth.) In fact, domestic demand grew by a solid 2.2% in the first quarter, though that is down a moderate amount from 3.6% in the previous quarter. Finally, the economy’s potential growth rate, in the long run, is dependent on productivity growth and labor force growth, and those two factors point to a roughly 2% long-term growth pattern.

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Consumer purchases of services picked up in the first quarter, rising at a 3.9% clip. Home construction grew strongly, while business purchases of equipment rose after two down quarters. There was some pullback: Spending on business structures was unchanged after a year of strong growth, and businesses cut back additions to their inventories of goods. Business spending will likely stay at the current modest rate because of high interest rates and tight bank lending standards. 

Federal government spending also was nearly unchanged. Federal outlays are expected to gradually ebb, as previous spending programs funded by Congress run their course. State and local governments have been hiring because they are still catching up after the pandemic, but they will start to cut back as their staffing approaches normal levels.

The yearly average GDP growth for 2024 will be 2.5%, the same as in 2023, but will then slow down to 1.9% in 2025.

Source: Department of Commerce: GDP Data

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