Latest / Markets with Megan: A Quick Financial Markets Update / Surprising Q2 GDP Growth and Its Impact on the Economy | Episode 158 | 07-19-24

Transcript

Surprising Q2 GDP Growth and Its Impact on the Economy | Episode 158 | 07-19-24 · Markets with Megan: A Quick Financial Markets Update

• 0:00
  Megan Horneman: Well, it was a big upward surprise here on the GDP report we got.
• 0:03
  Megan Horneman: Today.
• 0:04
  Megan Horneman: It is Thursday, July 25th, and this is your regular segment of Markets with Megan.
• 0:08
  Megan Horneman: We got the second quarter reading on GDP and remember, this is the advanced reading.
• 0:13
  Megan Horneman: This will get revised multiple times before we get a final reading, but the report came in much better than expected.
• 0:20
  Megan Horneman: Gdp grew 2.8% in the second quarter, that's after a 1.4% in the first quarter.
• 0:27
  Megan Horneman: Now, digging down into this, some of the other details that we look at, personal consumption was better than expected, up 2.3% after only being up 1.5% in the first quarter.
• 0:38
  Megan Horneman: When you look at the inflation components, though, let's look at that core price index that came in a little bit higher than expected 2.9% for the quarter.
• 0:49
  Megan Horneman: It is much better than the first quarter when we got that surprise jump at 3.7%, but it is a bit stronger than what was expected.
• 0:58
  Megan Horneman: So let's dig into some of the details here within this report, and when we look at the biggest contributions to this, we can see that we had, first of all, the consumer.
• 1:08
  Megan Horneman: We know that's the biggest part of GDP.
• 1:10
  Megan Horneman: The consumer contributed a significant amount to this, and it was actually on services.
• 1:16
  Megan Horneman: We know that we spent a lot on services, but there was a big jump in autos as well.
• 1:20
  Megan Horneman: So personal consumption contributed quite a bit.
• 1:23
  Megan Horneman: But digging down into some of the other details, you can see the AI portion of this where we saw a big increase in equipment spending and that's most likely from the AI boom we've seen here, especially info processing.
• 1:37
  Megan Horneman: We saw a detraction in residential spending and we know that Now that the housing numbers have been very weak.
• 1:44
  Megan Horneman: When you look at inventories, we had an inventory contraction in the first quarter and typically when you see that, you'll see an inventory rebuild in the following quarter.
• 1:55
  Megan Horneman: So we did get an increase in inventories, which helped GDP.
• 1:59
  Megan Horneman: And then we cannot forget which most people don't mention but the government spending.
• 2:03
  Megan Horneman: Government spending again was a big contribution to GDP and this is concerning because we often talk about the debt and we need to see some kind of reining in in this government spending because the deficit just continues to get worse.
• 2:15
  Megan Horneman: So what does all of this mean?
• 2:17
  Megan Horneman: First of all, I think it takes a July rate cut completely off the table.
• 2:22
  Megan Horneman: This gives the Fed the flexibility to say hey, gdp is still growing about trend Inflation is still not exactly where we want it to be.
• 2:30
  Megan Horneman: We need some more data points to confirm to us that inflation is coming down.
• 2:36
  Megan Horneman: September is still on the table, but we are going to get a lot more information between now and then that may either solidify that rate cut in September or push it out further into the fourth quarter.
• 2:47
  Megan Horneman: The most important thing that we're going to be looking at is the unemployment report that we'll get in the beginning of August.
• 2:54
  Megan Horneman: That will tell us whether or not that Fed can actually go in September.
• 2:58
  Megan Horneman: We'll see what kind of weakness that we see there.
• 3:00
  Megan Horneman: Jobless claims today.
• 3:02
  Megan Horneman: They weren't awful, so we'll wait and see what we get from that unemployment report.
• 3:08
  Megan Horneman: That's all that we have today.
• 3:10
  Megan Horneman: We'll be back tomorrow with some more economic data.
• 3:12
  Megan Horneman: And again, please like and share with your friends this podcast and if you'd like to see other podcasts, please go to marketswithmegan.
• 3:19
  Megan Horneman: fm.
• 3:21
  Megan Horneman: Thank you.