August 30, 2023


The revised estimate of second quarter GDP growth was 2.1% compared to the advance estimate of 2.4% and a 2.0% growth rate in the first quarter.  The economy may be slowing but, thus far, the slowdown is far less than many had expected.

Final sales, which is GDP excluding the change in business inventories, rose 2.2% in the second quarter after having jumped 4.2% in the first quarter   Given an increase in GDP of 2.1% and a 2.2% increase in final sales, the increase in inventories basically had no effect of GDP growth in the second quarter.  Inventories are certain to climb more rapidly in subsequent quarters of this year.

Final sales to domestic purchasers which excludes both the change in inventories and trade rose 2.3% in the second quarter after having gained 3.5% in the first quarter.  With a 2.2% increase in final sales and the virtually identical 2.3% increase in final sales to domestic purchasers, the trade component had essentially no impact on GDP growth in the second quarter as exports declined 10.6% and imports fell 7.0%.

Consumption spending rose 1.7% in the second quarter after having jumped 4.2% in the first quarter  Consumers continue to spend at a moderate pace despite higher interest rates and  still rapid inflation.  Spending on goods rose 0.7% in the second quarter while spending on services climbed by 2.2%..

Nonresidential investment jumped 6.1% in the second quarter after having risen 0.6% in the first quarter. Spending on structures surged by 11.2%.  Equipment spending jumped 7.7%.   In today’s world firms need to invest in technology that will allow them to survive difficult times, and/or help them expand their production and delivery functions to meet surging demand.  Intellectual property rose 2.2% in the second quarter.    In the past four quarters spending on intellectual property has risen 4.6%.

Residential investment fell 3.6% in the second quarter after having declined 4.0% in the first quarter.  Housing has taken the brunt thus far of higher mortgage rates and soaring home prices.  However with mortgage rates leveling off at 7.2% and new home sales gathering momentum, it is likely that this sector hit bottom in the second quarter.

The foreign sector as measured by the deficit for real net exports widened by $4.0 billion in the second quarter to $1,212.2 billion after narrowing by $30.2 billion in the first quarter.  Exports declined 10.6% in the second quarter while imports fell by 7.0%.

.Federal government spending rose 0.9% in the second quarter after having risen 6.0% in the first quarter,  Defense spending gained 2.8%, while non-defense spending fell by 0.7%%.

We expect GDP to expand at a 2.7% pace in the third quarter and 1.6% in the fourth quarter…  The economy keeps cranking out jobs and wages keep rising which will boost consumer income and spending.  The real funds rate is +0.8% currently which is not high enough to produce a significant slowdown in GDP growth. The economy will continue to chug along at a moderate pace until such time as the Fed boosts the funds rate well above the inflation rate.  By the end of the year we expect the funds rate to be 6.0% and the core CPI to increase 4.1% which means that the real funds rate will have risen to 1.9% which should be high enough to produce somewhat slower GDP growth of about 1.0% in the first half of next year.

Stephen Slifer


Charleston, SC