U.S. economic growth jumps to 2.6 percent in Q2

Javier Howell
July 29, 2017

The economy picked up in the second quarter after a lackluster start to the year as solid consumer spending more than offset weak business stockpiling and residential investment. Economists had expected an increase of 0.2 per cent, according to Thomson Reuters. Exports rose twice as fast as imports: 4.2% vs. 2.1%. Consumer spending rose 2.8%, and business spending went up 5.2%. IHS Markit economist Sara Johnson says us growth was also helped by an accelerating global economy that improved American trade. This is not far from the 2.1 percent average growth rate seen since the Great Recession, but I continue to believe that there is upward potential in the forecast, especially for 2018, if pro-growth policies are enacted. President Donald Trump had set an ambitious 3.0 percent growth target for 2017.

Statistics Canada said goods-producing industries rose 1.6 per cent, driven by a 4.6 per cent increase in the mining, quarrying, and oil and gas extraction sector. Consumer spending, which accounts for more than two-thirds of the USA economy, grew at a 1.1 percent rate in the first quarter, the weakest performance in a year.

But with wage growth remaining sluggish despite the labour market being near full employment, there are concerns that consumer spending could slow in the third quarter. It was the third straight quarterly increase.

The International Monetary Fund (IMF) also said on Thursday that it expected the US economy to grow at 2.1 percent this year and next, supported by solid consumption growth and a rebound in investment.

While businesses probably continued to carefully manage their inventories, they appeared to spend more in some places. First-quarter GDP was revised lower to 1.2%.

The second quarter is the first one that is more a Trump quarter than an Obama quarter, though of course we'll be saddled with Obama's lousy economic program for a long time.

"Even if the markets are juiced by good second-quarter GDP, there is a risk that it may be reversed as we come back from our summer holidays and the battle over the continuing resolution resumes with a potential government shutdown looming", said Megan Greene, chief economist at financial services firm Manulife.

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