Skip to Content
August 29, 2018 Blog 2 min read
The U.S. economy rebounded strongly in the second quarter, as a surge in consumer spending lifted growth to its strongest pace since Q3 2014.
82918 GDP ChartAs previously reported, economic growth accelerated in the second quarter. The only news in today’s report was that growth was better than previously believed, as the economy expanded at a brisk 4.2% pace, moderately exceeding economist expectations and posting its best quarterly result since the third quarter of 2014.

The key story here is the consumer sector. Consumer sentiment has been riding high on the back of strong job creation and growing signs that tight labor market conditions are lifting wages. Against that backdrop, it’s not surprising that consumer spending picked up sharply in recent months after a lackluster first quarter.

Personal consumption expenditures increased by 3.8%, but were particularly strong in durable goods, which increased by 8.6% for the quarter. Households are confident enough in their financial situation to not only spend, but to do so on higher ticket items – a very positive sign about the overall mood of consumers.

Perhaps the weakness in first quarter spending was the hangover in the aftermath of all of the spending leading up to the holidays or perhaps it was an anomaly in the statistical calculations. Whatever it was, it is now squarely in the rear view mirror. For as much as consumer spending languished in the first few months of the year, it has now roared back.

Conversely, spending on housing contracted for the second consecutive quarter, which may seem strange in an otherwise positive environment. Home prices have been rising alongside rising interest rates, undoubtedly creating a headwind for potential buyers.

Business investment, government spending, and a surge in exports also contributed positively to growth, while a fractional decline in imports was also supportive.

As is typically the case, there are a few potential clouds on the horizon that could put a damper on what is otherwise a strong economy. The threat of a widening trade skirmish and the potential that it could escalate is perhaps the most notable source of uncertainty. The recent announcement of a deal with Mexico alleviated some concern on that front, but it appears that there is still considerable progress to be made with other major trading partners including Canada and China.

Rising inflation is also a risk, but one that appears to be limited at this point. Even as measures of inflation reach or exceed the Fed’s target, policymakers remain on their gradual tightening path, raising short-term interest rates at a measured pace. There appears to be little risk of inflation accelerating rapidly, which would be the primary concern.

The bottom line is that the economy remains on a solid growth path and still appears to have the potential to remain on a positive track for some time to come.
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.