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Chart of the Day / Q2 GDP Hits 4.1% — The Fastest in Four Years

Q2 GDP Hits 4.1% — The Fastest in Four Years

July 30, 2018

U.S. GDP grew at a solid 4.1% pace in the second quarter of the year.

That’s the best pace we’ve seen since 2014 when we saw Q3 2014 growth of 4.9%. It’s also the third-best growth rate we’ve seen since the Great Recession of 2008.

“We’re on track to hit the highest annual growth rate in over 13 years,” President Donald Trump said in remarks an hour after the report hit. “And I will say this right now and I will say it strongly, as the deals come in one by one, we’re going to go a lot higher than these numbers, and these are great numbers.”

Consumer spending – which accounts for 70% of U.S. GDP growth played a significant role.

In fact, The New York Times reports that tax cuts seem to be encouraging consumer spending, which rose 4% in the spring quarter, the biggest increase since 2014.

June 2018 retail sales are a great example of that growth.

Retail sales were up solidly for June 2018, as households increased their purchases of autos and a range of other goods, which also just boosted expectations for better than expected second quarter GDP growth. According to the U.S. Commerce Department, retail sales were up 0.5% for June 2018.  That means retail sales are up 6.6% year over year.  The increase last month followed an even bigger spending spree in May, when sales grew 1.3% instead of a previously reported 0.8%.

Growth in non-residential business investment contributed to GDP growth as well, even though its 7.3% pace was slower than the 11.5% pace of the first quarter.

Spending on structures was up 13.3% following a 13.9% gain.  Equipment investment cooled to 3.9% and intellectual property spending slowed to 8.2%.

Housing remained a weak spot in the economy, unfortunately.

Residential investment cooled to a 1.1% rate, the fourth decline in five quarters.

And the contribution from net exports reflected a 9.3% gain in shipments abroad and a 0.5% increase in imports. Government spending increased at a 2.1% rate.

While there are some analysts that say the good times can’t last, we’re not so sure.

The unemployment rate, which hit a high of 10% has now fallen to just 4%. Job growth is on a record streak. American factories are hiring at their quickest rate in nearly two decades.  And tax cuts are beginning to play a big role in spending as well.

In our opinion, we may in fact see stronger growth moving forward.