Upward revisions in consumer spending and business investment point to resilience as durable goods orders extend momentum into Q3
The U.S. economic picture brightened considerably this week as fresh data revisions revealed underlying strength that had been masked in earlier estimates, according to the latest report from Wells Fargo Economics. Second quarter GDP growth was revised sharply upward to an annualized rate of 3.8 percent, driven by robust consumer spending on services and a notable rebound in business investment that carried momentum into the third quarter. The GDP revision represents a substantial upgrade from initial assessments, with consumer services spending leading the charge. The newly reported 2.6 percent annualized growth rate in services consumption exceeded Wells Fargo’s expectations and alone contributed 0.6 percentage points to overall economic growth. This upward adjustment aligns with recent reports showing stronger revenue performance in the service sector.
Business fixed investment emerged as another bright spot in the revised data, jumping to 7.3 percent annualized growth in the second quarter after initially appearing weak at just 1.9 percent. The dramatic revision reflects back-to-back upward adjustments to equipment and intellectual property spending. Intellectual property outlays saw the most striking revision, climbing from an initial estimate of 6.4 percent growth to 15 percent.
“By any reckoning, today’s durable goods report for August is better than what we had expected or what was expected by the consensus,” the report states.
The August durable goods orders data supported the thesis that investment momentum continued into the third quarter. While core nondefense capital goods shipments excluding aircraft declined 0.3 percent for the month, the measure has maintained positive year-over-year growth trends. This suggests businesses remain willing to invest in equipment despite broader economic uncertainties. At the same time, labor market indicators provided additional support for the resilience narrative. Jobless claims fell for both initial filers and continuing beneficiaries, maintaining historically low levels. This stability helps explain how the economy can sustain strong growth despite a cooling hiring environment, as companies appear reluctant to both hire new workers and lay off existing staff.
The revised GDP figures also revealed that real final sales to private domestic purchasers, a core measure of underlying demand, reached 2.9 percent growth after revisions—a full percentage point higher than previously estimated. This metric strips out inventory changes and government spending to focus on private sector demand fundamentals. Meanwhile, trade dynamics appear to be stabilizing after volatile swings in the first half of the year—advance goods trade balance data suggests net exports will have a more neutral impact on third quarter growth, reducing one source of economic volatility.
The stronger-than-expected data comes as the Federal Reserve weighs monetary policy decisions amid mixed economic signals. While growth appears more resilient than initially measured, questions remain about sustainability given ongoing trade policy uncertainties and global economic headwinds. Overall, the latest personal income and spending report for August will provide crucial insights into consumer momentum heading into the final quarter of the year. The data will help determine whether the service sector strength that drove second quarter revisions can be maintained.
