With the third quarter almost in the books and attention already pivoting to more timely data, few would expect a final look at second quarter GDP to be particularly meaningful. In this case in particular, they would be correct in that assessment.
The final estimate of Q2 GDP released this morning revealed very little that wasn’t already known. The report left growth for the quarter unchanged at 4.2%, which was very much in line with expectations.
While providing little new information, the report reinforced what was generally a positive view of the economy earlier this year. Growth for the first half averaged 3.2% - a solid above-trend pace indicative of an economy that has gathered momentum well into its expansion.
Consumer spending provided a solid boost, fueled by a generally optimistic consumer sector and continued strength in labor markets. Spending on durable goods was particularly strong, rebounding from a weaker result in the first quarter, although housing took a step back.
Also providing a boost were positive results on trade, with exports surging during the quarter even as imports declined modestly. It seems clear that shifting trade policies and the implementation of import tariffs – and the corresponding responses from many trading partners – is having an impact.
In the near term, trade numbers are likely distorted as the rush to ship products before specific tariffs are implemented has affected both imports and exports. With trade policy still in a state of flux, it’s still unclear what the intermediate or long-term impact will be. That tailwind in Q2 could become a headwind in the current quarter, as the trade deficit widened by $3.8 billion in August.
Still, all indications point toward continued growth in the current quarter, with labor market conditions still strong, sentiment indicators still positive, and positive momentum carrying the economy forward, despite rising uncertainty around global trade, the Fed’s continuing efforts to gradually raise interest rates, and a political environment that is increasingly volatile heading into mid-term elections in November.
If anything, the results speak to the strength of the economy and the resilience of the U.S. consumer as its primary driver. Despite a range of uncertainties, the economy remains very much on track.
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