The economy grew at an accelerated pace in the second quarter, reaching a pace that even exceeded expectations.
The revised estimate released by the Commerce Department this morning revealed that the U.S. economy grew at a brisk 3.0 percent quarter-over-quarter rate for the three months ended June 30, beating the previous estimate of 2.6 percent. Economists had called for an upward revision to 2.7 percent.
If the top-line growth number wasn’t enough of a positive, the underlying story also provides some reasons for optimism. Consumer spending bounced back strongly, growing by 3.3 percent after a pedestrian 1.9 percent advance in Q1. Spending on goods in particular perked up, with purchases of durable goods surging by 8.9 percent.
In the immediate aftermath of the Presidential election in November, business confidence soared, and surveys indicated a much greater willingness of businesses to ramp up capital spending budgets. The evidence of that change in tone was apparent in Q2, as nonresidential investment grew at a strong 6.9 percent clip. While President Trump has been challenged in pushing forward his economic agenda, surging business investment is a positive sign and provides a private sector vote of confidence in the economic outlook.
Business inventories, which can have a material impact on top-line growth as they fluctuate, were effectively flat during the quarter. Similarly, government spending was essentially unchanged, as modestly tighter budgets at the state and local level offset a modest uptick in defense spending.
Taking the first quarter growth estimate of 1.2 percent at face value, the economy started the year off at yet another sluggish pace. However, the “curse of the first quarter”, which dates back to 2000, has produced weak GDP readings that have averaged about 1 percent, typically followed by much better reported growth for the duration of the year. The significance and persistence of this trend suggests some problem with how the government applies seasonal adjustments in their calculations. Some of the rebound in Q2 may be attributable to that anomaly. Sustained acceleration in Q3 and beyond would go a long way in building confidence that stronger growth can be sustained.
All things considered, there are a number of positives in today’s report that illustrate that, at a minimum, the economy remains on track, with the potential for better days ahead.
Past performance does not guarantee future results. All investments include risk and have the potential for loss as well as gain.
Data sources for peer group comparisons, returns, and standard statistical data are provided by the sources referenced and are based on data obtained from recognized statistical services or other sources believed to be reliable. However, some or all information has not been verified prior to the analysis, and we do not make any representations as to its accuracy or completeness. Any analysis non-factual in nature constitutes only current opinions, which are subject to change. Benchmarks or indices are included for information purposes only to reflect the current market environment; no index is a directly tradable investment. There may be instances when consultant opinions regarding any fundamental or quantitative analysis may not agree.
Plante Moran Financial Advisors (PMFA) publishes this update to convey general information about market conditions and not for the purpose of providing investment advice. Investment in any of the companies or sectors mentioned herein may not be appropriate for you. You should consult a representative from PMFA for investment advice regarding your own situation.