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Robust GDP at 4.2%, Consumer Spending, Software Investment are Standouts

Robust GDP at 4.2%, Consumer Spending, Software Investment are Standouts

US economic growth was slightly stronger than initially reported, still its best performance in four years, with business spending increasing and imports fading. Gross domestic product increased by 4.2 percent annualized rate in the Commerce Department report. This was the second estimate of GDP growth for the April-June quarter, up slightly from the 4.1 percent report in July. This pace is the fastest rate since the third quarter of 2014. Business outlays on software was a key factor – it was strong – however there was a small downward revision in consumer spending.

This robust economic expansion will likely fade in the coming year as the one-off driver – a massive tax cut of $1.5 trillion dollars – put cash in the pockets of consumers. The government reported on Tuesday that the goods trade deficit jumped 6.3 percent to $72.2 billion in July, mainly on the back of a fall in food shipments which was clearly reflected in exports. Consumer spending remains solid but these figures are offset by a slowdown in the US housing market, are lower sales of new and existing homes are in decline. This is one figure that we should be aware of, given the demographic impact of new home buyers who may have different interests.

Currently, consumer spending is at 3.8 percent growth, while durables and non-durables are strong at 8.6 percent for the former and 3.7 percent for the latter. Spending on services is at 3.1 percent.

Many market analysts and economists had forecast this second estimate to be 4.0%, a slight revision downward. Still, this rate of expansion is faster than Q1, the January-March period which saw an average pace of 2.2 percent GDP growth. The key now will be how long the Trump policy changes can prop up economic growth.

Look for more updates and commentary from our team,

Team Classiarius


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