Strong Q2 GDP Report Gets Big Ho-Hum From Markets

Dianna Christensen
August 31, 2017

The U.S. economy grew faster than initially thought in the second quarter, notching its quickest pace in more than two years, and there are signs that the momentum was sustained at the start of the third quarter.

Real GDP for the second quarter of 2017 grew at a seasonally adjusted annual rate of 3.0%, according to the Bureau of Economic Analysis's revised estimate, up from the advance estimate of 2.6%. The downgrade reflects a 1.7% fall in spending by state and local governments. Corporate profits rose 1.3 percent in the second quarter following a drop of 2.1 percent in the first quarter.

Rising consumer spending, nonresidential fixed investment, exports, federal spending and private inventory investment drove the GDP increase in the second quarter. But the current devastation in Southeast Texas is expected to impact the third quarter economic growth, with economic activity significantly disrupted in the Houston, Victoria, and Corpus Christi metro areas.

"We're still in the slow-lane economy", said Stuart Hoffman, senior economic adviser at PNC Financial Services Group. A separate report on Wednesday from the ADP Research Institute showed companies added more workers than forecast in August, a positive sign ahead of the Labor Department's monthly payrolls data due Friday. That was up from 201,000 jobs in July.

The latest figures helped the dollar to build on gains against a basket of currencies in Wednesday trading. GDP has averaged annual growth rates of just 2.2 percent in this recovery, which is now the third longest in US history.

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"Underlying domestic demand in the economy is consistent with near three percent growth but the supply-side of the economy is not capable of delivering such a pace of growth at this point", said John Ryding, chief economist at RDQ Economics in NY. "There is no reason why we shouldn't", Trump told a crowd in Missouri where he was campaigning for support for the administration's tax plan that would cut rates for individuals and businesses.

Growth at an annualised pace was 2.1% in the fourth quarter of 2016.

"And I speak to them, leaders of the countries, how are you doing?" Trump said at an event in Springfield, Missouri.

The U.S. economy rebounded sharply in the spring, growing at the fastest pace in more than two years amid brisk consumer spending on autos and other goods. The nonpartisan Congressional Budget Office sees growth averaging 1.9 percent over the next decade, a forecast much closer to estimates made by private economists. That was an improvement from the lackluster 1.2 percent rate in the first quarter.

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