US Q2 GDP: Enough to sustain higher interest rates - Wells Fargo

Charlene Craig
July 30, 2018

After- tax incomes adjusted for inflation increased at a 2.6 percent annual pace, after 4.4 percent in the prior quarter.

Strong GDP growth reflected both real momentum in the underlying economy and stimulus policies that will be temporary-and perhaps damaging down the road.

Growth in consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased at a 4.0 per cent rate in the second quarter, accelerating from the first quarter's stall-speed pace of 0.5 per cent. In 2016 when CNNMoney surveyed 11 economists, who claimed, "Donald Trump is dreaming" after then-candidate Trump said it's time to establish the goal of meeting four percent economic growth. Central bank officials had raised rates twice this year and pencilled in two further increases this year and three in 2019, Efe news reported. Even Senegal has better economic growth figures than the United States. He campaigned on a platform of tax cuts for businesses and individuals, as well as deregulation.

The United States slapped 25 percent duties on $34 billion worth of Chinese goods effective July 6, provoking a similar response from Beijing, which targeted soybeans and other agricultural products as well as USA -made cars.

In other words, foreign companies appear to be importing as many goods as they can from the USA before their own governments retaliate against Trump's tariffs with duties of their own.

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On Thursday, it swept through the historic Gold Rush town of Shasta and nearby Keswick fueled by gusty winds and dry vegetation. The Carr Fire destroyed almost all of Keswick, a hamlet just west of Redding, which is about 250 miles north of San Francisco.

Otherwise, the growth will temper off. Trump has kept his promise for one quarter - but he may not be able to keep it for a whole year.

Government spending increased at a 2.1 per cent rate, adding 0.37 percentage point to growth.

The value of the dollar immediately rose and Treasury yields jumped in response. USA stock index futures also pared gains.

Earlier this month, the Commerce Department said USA soybean exports surged in the second quarter, delivering an outsize boon to economic growth even as China shifted much of its sourcing to Brazil in response to its worsening trade relations with the US. Economists in a Reuters poll earlier this week predicted that growth will slow notably from here. The rest of the year is likely to see solid, but slower growth of around 3 per cent.

FILE PHOTO - A shopper walks down an aisle in a newly opened Walmart Neighborhood Market in Chicago in this September 21, 2011 file photo.

Soybean farmers anxious, even with $12 billion in aid, and European Union promises
The money is aimed at shielding farmers from US President Donald Trump's disputes with China and other leading trading partners. The EU said it will also import more liquefied natural gas (LNG) from the USA in an attempt to "diversity its energy supply".

The numbers were driven by consumers who began spending the tax cuts Trump signed into law previous year and exporters who have been rushing to get their products delivered ahead of retaliatory tariffs. When services are included, such as insurance, tourism, and engineering, the US had a $2.8 billion surplus with Canada a year ago. Purchases of new autos were a major factor, along with spending on health care, housing and utilities and food services and accommodations.

In the April-June period, consumer spending had its biggest bounce in almost four years, with Americans buying more cars and spending more liberally on health care, housing, utilities, restaurants and hotels, according to the Commerce Department report.

"In one line: Looks great; won't last", Ian Shepherdson, the chief economist at Pantheon Macroeconomics, said in a note. The US trade deficit, Trump noted, has dropped by more than $50 billion.

The rush to offload soybeans, however, depleted farm inventories.

More generally, economists question whether the animal spirits awakened by the USA fiscal stimulus can continue to boost growth.

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UAE-Emirates have a stage win but not for Alexander Kristoff so it's probably all in for him unless they put a man in the escape. There is still one last major stage to race before the Saturday time trial and the ceremonial Sunday ride to the Champs-Élysées.

"The question is, how much are firms willing to stock up with the threat of a trade war?" she said in a research note. Companies including General Motors (NYSE:GM) are citing higher prices for steel and aluminum, as impacting their business.

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