The Trump Effect: US economy Poised for Strong Growth in Q-3

The Trump Effect: US economy Poised for Strong Growth in Q-3

The Trump Effect: US economy Poised for Strong Growth in Q-3

US economy is expanding at a 4.4% annualized rate in Q-3, the Atlanta Fed’s GDPNow forecast model showed Friday despite retail sales recording their smallest gainer in 6 months in August.

Consumers cut back on purchases of motor vehicles and clothing, but upward revisions to July retail-sales data kept intact expectations of strong economic growth in Q-3.

Friday’s revised forecast was higher than the 3.8% pace calculated by the regional Fed’s forecast program on 11 September, the Atlanta Fed said. The next GDPNow update is Wednesday, 19 September.

The nowcast of Q-3 real personal consumption expenditures growth increased from 3.0 to 3.7% after this Friday’s retail sales report from the US Census Bureau and the industrial production release from the Fed’s Board of Governors.

The economy grew at a 4.2% annualized rate in the April-June frame, the fastest in nearly 4 years and almost 2X the 2.2% pace set in Q-1.

Growth estimates for Q-3 Top a 3.0% rate, but Hurricane Florence, which crashed into the Carolinas Friday, could put a small dent into output. The hurricane could negatively impact labor market, housing, retail sales and industrial production data for September.

For now, the predictions for solid third-quarter economic growth prevail. A report from the Fed on Friday showed industrial production increased 0.4 percent in August after a similar gain in July. Industrial production was powered by an acceleration in the output of motor vehicles, utilities and mining.

Friday’s economic data showed the biggest drop in import prices in more than 1.5 years in August due to a decline in the cost of fuels and a range of other goods.

The weak import price data came on the heels of soft inflation readings in August.

Signs of cooling consumer spending and inflation did not change views that the Fed will raise interest rates later this month, the FOMC has increased borrowing costs 2X this year.

“The seas are calm for the economy with enough wind in the sails to keep the expansion on track and not enough inflation pressures out there to halt the economy’s forward progress,” the chief economist at MUFG in New York, told Reuters.

The Commerce Department said retail sales edged up 0.1% last month, the smallest rise since February. Data for July was revised higher to show sales rising 0.7% instead of the previously reported 0.5% gainer.

Economists polled by Reuters had forecast retail sales increasing 0.4% in August. Retail sales in August advanced 6.6% from a year ago.

Excluding automobiles, gasoline, building materials and food services, retail sales nudged up 0.1 percent last month after an upwardly revised 0.8% rise in July. These core retail sales correspond most closely with the consumer spending component of GDP.

Core retail sales were previously reported to have increased 0.5% in July. Despite the slowdown in core retail sales in August, consumer spending remains supported by a tightening labor market, which is steadily driving up wages.

Annual wage growth increased at its fastest pace in more than nine years in August and there were a record 6.9-M job openings in July.

Spending is also being underpinned by tax cuts and higher savings as well as high consumer sentiment.

Shayne and I believe that consumer spending will continue to increase at a sturdy pace through the rest of this year and into Y 2019, supporting overall economic growth, and the added expenditures resultant from the storms will just add to the numbers.

The economy is poised for strong growth in Q-3 of this year, but there is some concern about the trade dispute between the United States and China on the longer term outlook.

Have a terrific weekend

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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