The BEA released the 2nd Quarter 2018 GDP (Advance Estimate) including a Comprehensive Update: 1929 Through 2018 Q1.
The Second Quarter 2018 (Advance Estimate) show real GDP rose 4.1%, the strongest showing since the third quarter of 2014.
Highlights
- Real GDP: 4.1%
- GDP Price Index: 3.0%
- Real Consumer Spending: 4.0%
- Real Final Sales: 5.1%
Percentage Point Contributions
- Consumer Spending: 2.69 PP (Goods 1.24 + Services 1.46)
- Net Exports: 1.06 PP
- Inventories: -1.00 PP
- Non-Residential Investment: 0.98 PP
- Residential Investment: -0.04 PP
- Government: 0.37 PP
Revisions
The BEA revised first-quarter GDP from 2.0% to 2.2%.
The savings rate for 2017 had a massive adjustment to 6.7% from 3.4%.
Historical Adjustments
From the first quarter of 2012 through the fourth quarter of 2017, the average revision (without regard to sign) in the percent change in real GDP was 0.4 percentage point.
Talk of Overheating, Soybeans, Other Comments
The Wall Street Journal has some other interesting details in its GDP report.
The robust report makes it highly likely the Federal Reserve will continue gradually raising short-term interest rates to prevent the economy from overheating. Central bank officials have raised rates twice this year, and penciled in two further increases this year and three in 2019.
Earlier this month, the Commerce Department said 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 export rally likely reflected efforts by buyers to get their soybeans before China’s 25% retaliatory tariffs on U.S. soybeans, which hit in July.
The current expansion, which began in mid-2009, became the second longest on record in July, trailing only the 10-year expansion that ended in early 2001.
Growth has been lackluster during the current expansion: from the second quarter of 2009 to the end of last year, GDP increased at an average annual rate of 2.2%, below the 2.9% rate during the 2001-2007 expansion and the 3.6% rate from early 1991-2001.
Overheating?
This was no doubt a very strong report but it will also be hard to match.
Soybeans and net exports are unlikely to repeat. Housing appears as if it's ready to roll over, and rate hikes won't help any.
On the plus side, inventory replenishment will likely give a boost to the third quarter.
Consumer spending has been kept afloat by the stock market and the wealth effect of housing.
And what about that tax cut?
There's been 4 other times this cycle when real GDP growth was 4% or better. You would think based on all the buzz right now that the last time this happened the dinosaurs roamed the earth. The biggest deficit-financed tax cut in 32 yrs - what would you expect? Watch for a Q3 dud
— David Rosenberg (@EconguyRosie) July 27, 2018
I know I will be accused of cherry-picking the data, but this is called analysis, not reporting. The key here is sustainability. Adjusting for the transitory fiscal juice, soybean export boom and lumpy defense spending, real GDP growth was really closer to 2%, not 4% in Q2 <1/2>
— David Rosenberg (@EconguyRosie) July 27, 2018
Because of inventories, Rosie may be off by a quarter.
Nearly half the increase in business investment in Q2 was in one sector - mining - which is very unlikely to repeat the performance in Q3, given flat oil prices since mid-April.
— Ian Shepherdson (@IanShepherdson) July 27, 2018
On the whole, this was a very long and very weak expansion. Things look rosy when they are as good as it gets.
Recall that Alan Greenspan was very worried about the economy overheating in June of 2000 right before the DotCom crash.
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