Consumer Spending – I’ll Bet that Q3 Real GDP Growth Will Be Closer to Q1’s than Q2’s

It’s too hot to go sailing today, so I thought I’d “unpack”, as the kids on cable news say, second quarter real GDP and real personal consumption growth (PCE). I will argue that the quarter-to-quarter acceleration in the growth of both second quarter real GDP and real PCE was due more to arithmetic than a fundamental acceleration in the growth of aggregate demand. To refresh your memory, real GDP annualized growth in the second quarter was 2.6% versus 1.2% in the first quarter. Real PCE growth annualized growth in the second quarter was 2.8% versus 1.9% in the first quarter.
Let’s take a look at the month-to-month annualized real PCE growth over the first six months of 2017 (see Chart 1). The median month-to-month annualized real PCE growth during this time period was a paltry 0.6%. The outlier during this period was March, when annualized real PCE growth was a whopping 9.2%. The annualized growth rate of real PCE in April, May and June were 0.20%, 2.20% and 0.45%, respectively. The three-month average of the annualized growth rates of real PCE for April, May and June was 1.15%, a far cry from the 2.8% annualized growth in the quarterly average level of real PCE.
Chart 1