Ahead of the Bell: Economy-GDP

Posted August 31, 2017

We expect the strength of consumer and business spending to continue into the third quarter.

It is not unusual for the USA economy to see a "spring bounce", where growth picks up sharply after the winter months as people head to the store or take expensive vacations. Goods exports increased by 2.3 percent in the second quarter, with goods imports up by 1.6 percent.

"If not for the uncertain impact of Harvey, we would be tempted to raise our current 2.4% estimate for Q3 GDP growth", he says in an economics update.

The upgrade in GDP "has been somewhat positive for the USA dollar and negative for fixed income", says Royce Mendes, director at CIBC Capital Markets, in an economics note.

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This came in much higher than the 185,000 forecast by analysts, and upped the ante on expectations for Friday's report, where forecasts now sit at 180,000 - which is close to the average monthly increase this year. Fallout from Hurricane Harvey may also trim third-quarter growth, though reconstruction is likely to help expansion in the following period.

During last year's campaign, Trump pledged to boost economic growth to 4 per cent or better. For 2017, the Camp Kotok group predicts a 2.1-per-cent pace of growth.

Despite the acceleration in consumer spending, inflation remained benign in the second quarter. Most of the upward revision was due to stronger consumption spending, which expanded 3.3 percent from the initial estimate of 2.8 percent.

The Commerce Department originally estimated second-quarter growth at 2.6 per cent, but it was revised up to a 3-per-cent pace on Wednesday as more data came in. Spending on equipment jumped at a rate of 8.8 percent.

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Analysts are looking for a pickup in activity for the second half of this year and an even faster growth in 2018 if Trump is successful in getting parts of his economic program passed by Congress. At the same time, private inventories stabilized in the second quarter but added just 0.02 percentage points to headline growth.

Imports, which are a subtraction in the calculation of GDP, increased. Trade added two-tenths of a percentage point to growth.

That is different from the United Kingdom, which publishes quarter-on-quarter growth figures.

Residential fixed investment and state and local government spending were both downwardly revised, offsetting a larger second quarter increase. Motor vehicle production rebounded after two straight quarters of declines.

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