US GDP Growing on Strong Domestic Demand
The US economy set to charge ahead as fresh domestic demand carries it past some softening overseas, keeping the Fed on course for further interest-rate hikes later this year
Households have more cash to spend than thought, thanks to pools of savings and President Donald Trump’s tax cuts.
Firms are ramping up production and rebuilding inventories after running them down by the most since Y 2009. And government spending finally looks set to swell, after Congress opened the floodgates in March with a $1.3-T spending package.
Growth in 2-H of Y 2018 could clock in at 3%+ according to some economists. That would be slower than Q-2’s 4.1% pace, it would be enough to make the entire year’s performance the best since Y 2005, when GDP came in at 3.5%.
The solid outlook should prompt the FOMC to move ahead with plans to raise rates two more times this year in spite of criticism from President Trump.
Growth of 3% in Y 2018 should be welcomed by the White House. It would be a down payment on The Trump Administration’s policy that business tax breaks, deregulation and more-favorable trade policies will lift expansion to that pace on a sustained basis.
Below are some reasons for the optimism, as follows:
The fundamentals underpinning households are sound, as Americans are benefiting from a strong job market, tax cuts and rising household wealth that’s courtesy of buoyant stock and property prices. Wages are lagging but they will catch up.
Business profits are booming, helped by Trump’s tax breaks. That money is being plowed into share buybacks and increased capital investment.
The economy should receive a boost in 2-H, as companies rebuild depleted inventories. Inventory investment should contribute a lot to GDP growth in Q-3
Government expenditures have been slow to pick up after the March passage of an omnibus spending bill. That is about to change, a federal spending is seen rising at an annual rate of about 8% in 2-H of Y 2018, up from a pace of about 3% in 1-H.
The housing market is losing steam due to a shortage of affordable listings, higher mortgage rates and unfavorable tax changes for some buyers. The pullback in demand has caused builders to turn a bit cautious, and economists say residential construction may be a drag on GDP growth for the 3rd Q running.
Trade may hold the economy back, after contributing to Q-2 growth as US exporters of Soybean and other products stepped up shipments to beat retaliatory tariffs from abroad, those trade issues are being settled now.
We see a pretty strong 2-H, there lots of positive forces happening.
Keeping America Great!
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