GDP shows economy in 'good shape,' but markets wanted more

Soybeans are unloaded at dusk during harvest in Buda Illinois on Sept. 29 2017. Bloomberg

Soybeans are unloaded at dusk during harvest in Buda Illinois on Sept. 29 2017. Bloomberg

The economy grew by more than 4 percent in the second quarter of 2018, however. Business investment and government spending also increased.

President Trump called the second-quarter GDP growth data "very sustainable".

Ahead of Friday's release, President Donald Trump and members of his economic team have been promoting the notion that second-quarter growth will be robust.

President Donald Trump took the GDP report as an occasion to tout the numbers, notably because of a shrinkage in the trade deficit, an area of great interest, he noted.

The latest GDP figure was almost double the 2.2 percent growth rate in the first quarter, which was revised up from a previous estimate of 2 percent growth.

"In one line: Looks great; won't last", Ian Shepherdson, the chief economist at Pantheon Macroeconomics, said in a note.

Canada, Mexico and other countries have announced retaliatory tariffs against USA products in response to the US tariffs on steel and aluminum imports.

Economists surveyed by The Wall Street Journal expected a 4.4 per cent growth rate.

Post — The Washington Post
Post — The Washington Post

At the same time, the uncertainty over trade policy may spur some companies to slow investment, resulting in a hit to economic growth in the second half or later.

"We expect that fiscal stimulus will continue to prevail over tariffs and oil prices this year, potentially boosting United States economic growth to its highest point of the cycle", LPL Financial chief investment strategist John Lynch said. But the stimulus is expected to fade sometime next year. The growth rate was driven by consumers spending their tax cuts and exporters rushing to get their products delivered ahead of retaliatory tariffs. The U.S. central bank increased borrowing costs in June for the second time this year and forecast two more rate hikes for 2018. "I think it's more like a riptide current and I think it'll hold for a little bit, at least two or three more quarters". "Now you have to redo your forecast and figure out what to do with the rest of the year", said Ward McCarthy, chief financial economist at Jefferies.

Boosted by a 4-percent jump in consumer spending and a 13.3 percent surge in goods exports in the second quarter, the economy expanded at its fastest pace since the 4.9-percent rate of the third quarter of 2014.

Americans have ramped up their spending after cutting back in the first three months of the year, encouraged by tax cuts that have left more money in their pockets. In addition to soybeans, exports were boosted by petroleum and related products. The US trade deficit, Trump noted, has dropped by more than $50 billion.

MARTIN: NPR business reporter Chris Arnold is also with us right now.

The strong second-quarter growth reflected large increases in orders of durable goods, investment in non-residential construction, exports, intellectual property, and government defense spending.

It also showed that inflation, which has been lacklustre in recent years, rose by 2% according to the Fed's preferred measure, which is tied to consumer spending, except on food and energy.

More news: Rudy: Trump Is Innocent Because He Did Not Personally Hack Democratic Emails
More news: US prepares new sanctions against Russia
More news: Putin ‘spy-ball’ gift to Trump found to contain transmitting device

Recommended News

We are pleased to provide this opportunity to share information, experiences and observations about what's in the news.
Some of the comments may be reprinted elsewhere in the site or in the newspaper.
Thank you for taking the time to offer your thoughts.