U.S. Economy Grows 2.2% in Second Quarter, Consumer Spending Increases

The U.S. economy expanded at an annual rate of 2.2% in the second quarter of 2023, according to the Commerce Department's final estimate, revising up from an earlier projection of 1.5%. This growth marked a decrease from the 2.5% pace registered in the first quarter.

Consumer spending, which constitutes about 70% of the U.S. economic activity, rose significantly by 3.8%, a rise from just 0.7% in the previous quarter. This increase in expenditure is seen as a positive indicator for new-vehicle sales, prompting Cox Automotive to elevate its forecast for 2026 new-vehicle sales to 16.1 million units, an increase from 15.8 million.

The surge in consumer spending has been attributed to gains in the stock market, spurred by interest in artificial intelligence, boosting the disposable income of wealthier households. Real final sales to private domestic purchasers, a metric excluding government spending and trade, increased by 4.6%, compared to 1.8% in the first quarter.

Cox Automotive's senior economist, Charlie Chesbrough, noted that a more affluent customer base and increased business purchases are stabilizing the market, supported by high stock market values. Despite challenges such as rising fuel prices and high interest rates, consumer demand remains resilient.

In the business sector, investment excluding housing saw a notable increase of 9% due to the booming interest in AI technology. Imports rose by 12.6%, largely from shipments related to chips and AI products, although overall growth was tempered by nearly 1.7 percentage points.

In terms of housing, investment grew by 2.8% for the first time since late 2024, though challenges remain due to elevated mortgage rates.

Looking ahead, J.D. Power and GlobalData forecast October new-vehicle sales at a seasonally adjusted annual rate (SAAR) of 15.6 million, matching sales from a year prior. Retail sales could see a decline of 1.4%, while the average monthly payment for vehicles is expected to reach a record high of $823, with an average loan rate projected at 6.81%, an increase of 19 basis points. In September, retail consumers were estimated to spend $48.7 billion on new vehicles, a 6.6% increase. The preliminary estimate for third-quarter GDP is expected to be released on October 29.