A first estimate released by the Commerce Department on Thursday indicates that the second quarter of U.S. economic activity was far higher than anticipated.

After accounting for inflation and seasonality, the real gross domestic product—a measure of all the goods and services generated between April and June—grew at an annualised rate of 2.8%. Dow Jones polled economists, who anticipated growth of 2.1% after 1.4% in the first quarter.

According to the first of three estimates the government will publish, consumer spending, private inventory investment, and nonresidential fixed investment all contributed to the growth number’s increase.

The primary indicator of consumer activity included in the Bureau of Economic Analysis report, personal consumption expenditures, grew 2.3% during the quarter, up from a 1.5% acceleration in Q1. Spending on goods and services increased significantly throughout the period.

Moreover, inventories made a substantial contribution, increasing the overall increase by 0.82 percentage points.

Conversely, imports—which deduct from GDP—rose 6.9%, marking the largest quarterly increase since Q1 of 2022.

Treasury rates fell in the wake of the data, but stock market futures gradually increased.

“The composition of growth was one of the better mixes that we have observed in some time,” said Joseph Brusuelas, chief economist at RSM. The report “tends to support the idea that the American economy is in the midst of a productivity boom which over the medium term will lift living standards across the country via lower inflation, low employment and rising real wages.”

On the front of inflation, there was some positive news: the Federal Reserve’s primary gauge, the personal consumption expenditures price index, rose 2.6% during the quarter, down from 3.4% in Q1. Core PCE prices, which the Fed monitors even more as a longer-term inflation indicator, were up 2.9%, down from 3.7% in the previous period, excluding food and energy.

The so-called chain-weighted pricing index, which accounts for shifts in consumer spending patterns, grew by 2.3% during the quarter, less than the 2.6% forecast.

Final sales to private domestic buyers, another important factor that the Fed views as a reliable gauge of underlying demand, increased at a 2.6% rate, unchanged from the previous quarter.

The study did, however, also show that the personal savings rate is still declining, coming in at 3.5% for the quarter as opposed to 3.8% in Q1.

Recently, there have been indications of weakness in the consumer image.

According to a Philadelphia Federal Reserve study released on Wednesday, credit card balances have reached a record high for data dating back to 2012. Even as banks reported tightened credit criteria and a decline in new card originations, the amounts of revolving debt still hit a record high.

Nonetheless, retail sales figures have persisted in rising, suggesting that consumers are enduring the challenges posed by high borrowing rates and ongoing inflation.

In the housing market, there is additional pressure on first-time homeowners as sales are down and prices are rising.

When they convene next week, Federal Reserve officials are anticipated to maintain current interest rates, yet market expectations indicate that September will see the first rate reduction in four years. Although recent remarks suggest a greater willingness to begin loosening policy, policymakers have been cautious about when they may begin lowering rates. Additionally, the majority of central bankers have stated that they believe further rate hikes are improbable.

The Labour Department said on Thursday that first unemployment claims for the week ending 20 July were 235,000, which was exactly in line with the Dow Jones projection and down 10,000 from the previous week. This was the other economic news. A week behind schedule, continuing claims decreased to 1.85 million.

In addition, orders for durable goods, or big-ticket products like computers, appliances, and aeroplanes, unexpectedly dropped 6.6% in June compared to a 0.3% gain predicted. But new orders went up 0.5% when transportation was taken out.

(Adapted from CNBC.com)

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