What future for US GDP after the best quarter of growth since 2014

The 4.1% growth rate of the US economy in the second quarter, the highest since 2014, owes a great deal to exports and the demand of consumers and businesses. Maintaining such a high pace will be difficult as tax cuts help fade, although some declines – such as a drop in inventories – may prove positive

Economists' forecasts show that growth will reach about 3% this year. year. This indicates a slightly more moderate pace than the April to June results, but better than the 2.3% average growth of the expansion begun in 2009. Here is a more detailed overview of the performance of the components. gross domestic product in the last quarter.

Consumer spending

Household consumption, which accounts for nearly 70% of GDP, rebounded to a growth rate of 4%, higher than expected and after a 0.5% increase in the quarter previous. According to economists, this part of the economy should continue to grow, thanks to the conjunction of factors. In addition to reducing taxes as part of the biggest reform since the Reagan era, consumer purchasing power benefits from regular hires, an unemployment rate close to its lower since 1969, an improvement in finances and contained inflation. The reserve increases borrowing costs and wage growth remains modest. Consumer paychecks grew at a slower pace in the final quarter, with inflation-adjusted after-tax incomes rising at an annual rate of 2.6%, lower than the 4.4% recorded in the previous quarter. The savings rate fell to 6.8% vs. 7.2%. Car sales, which have held up surprisingly well this year, may also be struggling to maintain their recent pace

Business Investment

The power of tax cuts was also evident in this category, with non-residential business investment at 7.3% after jumping 11.5% in the first quarter. This contributed nearly one percentage point to growth in the second quarter. In this component, structural expenditures increased by 13.3%, driven by oil and gas drilling, after a gain of 13.9% over the previous period.

Since the new tax package has generated strong incentives, is difficult to say if companies will be inclined to maintain this fast pace of investment over the coming quarters. The energy sector could also provide less lift, as an indicator – the number of rigs – was already cooling towards the end of the second quarter, badysts said. In addition, residential investment weighed on growth for the fourth time in five quarters as signs indicate that the real estate sector is expected to experience its biggest slowdown in years.

Oil Fields Boosted the US Economy

19659004] The biggest temporary boost to growth may come from a weaker trade deficit. Net exports were 1.06 percentage points, the highest since 2013. The figures reflected a 9.3% increase in shipments abroad, boosted in part by a surge in soybean shipments ahead of tariffs. retaliation and exports of oil and related products

. We are counting on this component to continue delivering in the midst of headwinds, including a strong dollar, and rates that have been proposed or already implemented in an increasingly wide-ranging trade war. In addition, strong domestic demand from households and businesses will lead to a recovery in imports, which could lead to a worsening of the trade deficit.

Recent history also recalls that net exports are not often a beneficial force for GDP growth. the second quarter. This component slowed in the previous two quarters and barely increased growth for several periods before that.

Inventories

A weak point in the report was a decline in inventories, which cut 1 point from 2014. The Commerce Department cited soybean stocks as well as those of drugs and sundries and petroleum products. related. Given that demand is expected to continue to grow, economists believe that companies will replenish their inventories in the third quarter, so stocks can become a contributor, a drag. On average over longer periods, this volatile and difficult-to-predict category tends to be a slip of the way in GDP calculations

Government Spending

Government spending also contributed to the recovery, increasing at a rate of 2 , 1% and add 0.37 percentage points to growth. Federal spending rose 3.5%, the second highest since 2014, driven by defense spending, while public and local spending rose 1.4%. Economists are expecting further contributions from this component, thanks to an increase in government spending that was enacted earlier this year following tax cuts.