U.S. GDP grew less vigorously than believed in Q2

A revision of second-quarter GDP numbers contains two pieces of good news for anyone hoping for an economic soft landing.

Driving the news: The economy expanded at a 2.1% annual rate in the April through June quarter, the Commerce Department said Wednesday, not the 2.4% initially estimated.

• More noteworthy, gross domestic income, an alternate measure of economic growth, showed an even more modest expansion. It rose at only a 0.5% annual rate in Q2, implying growth well below the long-term trend.

The intrigue: The Fed aims to bring down inflation through a period of growth below the long-term trend, which Fed officials think is something like 1.8%.

• As measured by GDP, it just isn't happening. The third quarter, currently about two-thirds complete, looks likely to be the fifth straight of above-trend growth.
• GDI, which in theory should track with GDP, is showing the opposite, with below-trend growth for three straight quarters. Indeed, it is slightly negative over the last year, down 0.5% from Q2 2022.

A common way of splitting the difference is to average the two measures in hopes of capturing the underlying growth trajectory of the economy. That shows 1% growth over the last year, within the sweet spot the Fed is aiming for — below-trend but non-recessionary.

The bottom line: The income numbers, combined with the latest GDP revision, can give some ammunition to Fed officials who believe it's time to be done with interest rate hikes.