July 30, 2026
The preliminary estimate of first second quarter GDP growth was 1.5% which compares to 2.1% growth in the first quarter. Growth of 1.5% may seem a bit slow but it is not. The very volatile change in inventories category subtracted 0.7% from growth in that quarter as businesses chose to satisfy demand by running down their inventory levels rather than boosting production in that quarter. At the same time the deficit for real net exports widened sharply in the second quarter and subtracted an additional 0.9% from GDP growth in that quarter. in other words final sales to domestic purchasers was a steamy 3.1% in the second quarter. the economy does not appear to be slowing down.
Final sales is GDP less the change in nonfarm business inventories. Final sales climbed by 2,2% in the second quarter after gaining 1.9% in the fourth quarter. Inventories fell $66.5 billion. They may well be unchanged or even increase a bit in the third quarter and add 0.5% to growth in that quarter.
Final sales to domestic purchasers is GDP less the change in both inventories and trade. Final sales to domestic purchasers rose 3.1% in the second quarter after climbing 0.6% in the first quarter. The trade deficit widened by $73 billion and subtracted 0.9% from GDP growth in that quarter. But this component is also volatile and could shrink and add perhaps 0.8% to GDP growth in the third quarter.
..
Personal consumption expenditures rose 3.2% in the second quarter after having risen 0.5% in the first quarter. With real disposable income having declined 0.1% in the past year and real personal consumption expenditures rising 2.3%, consumer spending may slow somewhat in the months ahead. However, middle and upper income families are using some of their stock market gains to boost their spending and maintain their lifestyle.
Nonresidential investment rose 8.2% in the second quarter after having surged by 10.6% in the first quarter. Spending on structures declined 4.7% in the first quarter. Equipment spending climbed by 15.8%. Intellectual property rose at a 13.8% pace. In the past year intellectual property has risen 9.8% This is AI in action. Firms are working hard to find ways to adopt AI and make their employees become more productive. Rapid growth in this category should climb for years to come.
Residential investment rose 1.5% in the second quarter after having fallen 7.8% in the first quarter. This is the first increase in this category since the fourth quarter of 2024. It could be that the housing sector is beginning to turn upwards.
The deficit for real net exports widened by $73. billion in the second quarter to $1,074.7 billion after having widened by $33.2 billion in the first quarter. Trump was hopeful that tariffs would cause overseas manufacturers to shift production to the U.S. and thereby reduce imports and the trade gap. There is little evidence that is happening. The widening of the trade gap subtracted 0.9% from GDP growth in the second quarter. But this is a volatile series and could add perhaps 0.8% to GDP growth in the third quarter.
Federal government expenditures fell 4.2% in the second quarter after having risen 9.4% in the first quarter.
For what it is worth we expect GDP growth of 3.5% in the third quarter and we look for GDP growth of 2.3% for the year. Little change in inventories and a narrowing of the trade gap in the third quarter could add perhaps 1.5% to GDP growth in that quarter.
Stephen Slifer
NumberNomics
Charleston, S.C.
Follow Me