The U.S. economy grew faster in the second quarter than previously reported, according to new government data released Wednesday, a boost for President Donald Trump as Republicans head into November’s midterm elections with the economy a top issue for voters.
The Commerce Department revised its estimate for second-quarter GDP growth up by 0.7 percentage points, to 2.2 percent.
“The contributors to the increase in real GDP in the second quarter were consumer spending, investment, and exports. Imports, which are a subtraction in the calculation of GDP, increased,” the Bureau of Economic Analysis (BEA) said in a statement.
Analysts credited the artificial intelligence boom, saying much of the upward revision came from AI-exposed sectors.
“The annual revisions show AI contributed more to growth and less to inflation in recent years than previously thought,” said Michael Pearce, chief U.S. economist at Oxford Economics.
The BEA also raised its first-quarter growth estimate by 0.4 percentage points, to 2.5 percent. The department said that change was driven mainly by upward revisions to consumer spending and services exports.
INFLATION HOLDS STEADY
In a separate release, the BEA said the Personal Consumption Expenditures (PCE) price index, the Federal Reserve’s preferred inflation gauge, stood at 3.4 percent year-over-year in August. That was unchanged from July after a revision to that month’s data. Core PCE, which strips out volatile food and energy prices, came in at 3.0 percent.
The PCE index covers a broader range of household spending than the Consumer Price Index (CPI).
American families and businesses have been hammered by years of high prices since the pandemic, and the Fed has missed its long-term 2 percent inflation target since early 2021. Earlier this month, the central bank raised interest rates for the first time in three years.
Some of Trump’s policies, including widespread tariffs, have fueled inflation. The Iran war has sent global energy prices soaring, with U.S. consumers paying an average of 50 percent more at the pump.
On Tuesday, an influential U.S. central banker said there was no “urgency” to raise rates again, though he indicated one more hike could be needed before the end of the year.
Wednesday’s PCE revisions reflected planned methodological changes, including to how the BEA calculates prices for computer-related products, portfolio management and legal services.
Bernard Yaros of Oxford Economics said the new data was unlikely to move the Fed off its tightening path, especially given upside risks to energy prices from the Iran war.
“Core inflation is still hovering well above target, and risks are firmly stacked to the upside because of the sharp rise in refined petroleum product prices in recent months,” he said.
PRIVATE HIRING BOUNCES BACK
The labor market has stayed largely stable this year, allowing the Fed to focus on the inflation side of its dual mandate.
Payroll firm ADP reported Wednesday that private-sector hiring rebounded strongly in September, with 90,000 jobs added. That was up from 38,000 in August, the slowest pace of the year, and well above market expectations.
“It’s a strong report,” said Nela Richardson, ADP’s chief economist. “After a three-month slowdown, job creation rebounded and pay growth remained solid.”
Analyst Matthew Martin said the data underscored “the strength of the labor market” and “will bolster market expectations for firmer monetary policy from the Federal Reserve as it seeks to ensure inflation is tamped out.”
ADP’s report is closely watched ahead of the official employment numbers due Friday, though the two reports can diverge.
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