The gross domestic product (GDP) hit 4.1% in the second quarter, up from 2.2% in the first quarter. This is the fastest rising GDP since 2014!
The Bureau of Economic Analysis reported that the growth comes “from positive contributions from personal consumption expenditures (PCE), exports, nonresidential fixed investment, federal government spending, and state and local government spending that were partly offset by negative contributions from private inventory investment and residential fixed investment.”
Economists predicted a 4.2% GDP in this second quarter.
While the numbers provide good news, we should remain cautious because of the WHY of the boots. The economists believe that the rise in the GDP mainly came from the tariffs “by motivating farmers, manufacturers, and others to accelerate plans for overseas sales to avoid new tariffs.”
According to The Wall Street Journal, the Commerce Department announced that “U.S. soybean exports surged in the second quarter, delivering an outsize boon to economic growth even as China shifted much of its sourcing to Brazil in response to its worsening trade relations with the U.S.” The publication noted that “[I]nventories subtracted 1.00 percentage point from the quarter’s GDP growth rate” since “trade and inventories tend to be volatile categories.”
Here’s another explanation from Bloomberg. The market doesn’t believe this growth is sustainable.
As a libertarian, many people ask me why I’m so anti-16th Amendment. I explain that if people keep more of their money they can spend more. The only way to boost the economy is for consumers to pump money into it.
The power of the consumer!! This report backs up what I’ve been saying for many years:
Strong consumer spending helped boost growth alongside trade. A low unemployment rate, steady job and wage growth and the late-2017 tax overhaul may have encouraged spending by consumers and businesses in the second quarter. Consumer spending, business investment and government spending all rose.Consumer spending accounts for more than two-thirds of total economic output. Friday’s report said personal-consumption expenditures rose at a 4.0% annual rate in the second quarter, the strongest rate of growth since the fourth quarter of 2014. Spending on durable goods alone contributed 0.64 percentage point to the second-quarter rate, the Commerce Department said. As Americans spent more, they saved less. The personal saving rate was 6.8% in the second quarter, down from 7.2% in the first.
The weaker points of the report belong to business spending and housing. Business spending “contributed almost 1 percentage point to growth though the 7.3 percent pace was slower than the first quarter’s 11.5 percent.” Purchasing of equipment went down to 3.9% while “intellectual spending slowed to 8.2 percent.” Housing “fell at a 1.1% rate in the second quarter.”
[Featured image via Wikimedia Commons]
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