Economic activity in the U.S. was considerably stronger than expected during the second quarter, boosted by a strong consumer, government spending and a sizeable inventory build, according to an initial estimate Thursday from the Commerce Department. Real gross domestic product, a measure of all the goods and services produced during the April-through-June period, increased at a 2.8% annualized pace adjusted for seasonality and inflation. Economists surveyed by Dow Jones had been looking for growth of 2.1% following a 1.4% rise in the first quarter. Consumer spending helped propel the growth number higher, as did contributions from private inventory investment and nonresidential fixed investment, according to the first of three estimates the department will provide.

Personal consumption expenditures, the main proxy in the Bureau of Economic Analysis report for consumer activity, increased 2.3% for the quarter, up from the 1.5% acceleration in Q1. Both services and goods spending saw solid increases for the quarter. Inventories also were a significant contributor, adding 0.82 percentage point to the total gain. Government spending added a tailwind as well, rising 3.9% at the federal level, including a 5.2% surge in defense outlays. On the downside, imports, which subtract from GDP, jumped 6.9%, the biggest quarterly rise since Q1 of 2022. Exports were up just 2%. Stock market futures drifted higher following the report while Treasury yields moved lower. "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." There was some good news on the inflation front: the personal consumption expenditures price index, a key measure for the Federal Reserve, increased 2.6% for the quarter, down from the 3.4% move in Q1. Excluding food and energy, core PCE prices, which the Fed focuses on even more as a longer-term inflation indicator, were up 2.9%, compared to a 3.7% increase in the prior period. The so-called chain-weighted price index, which takes into account changes in consumer behavior, increased 2.3% for the quarter, below the 2.6% estimate. Treasury Secretary Janet Yellen saw the GDP report as "affirming the path we're on to steady growth and declining inflation," in remarks she delivered Thursday morning in Rio de Janeiro.

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