After a lackluster start to 2017, the U.S. economy quickened this spring, powered by strong consumer spending, which was helped by a steady labor market. The Commerce Department has said that growth in the gross domestic product—or GDP, which is the economy’s total output of goods and services—expanded at a 2.6% annual rate in the April through June quarter. That’s more than double the revised 1.2% pace in the first quarter.
A slow first quarter followed by stronger growth in the spring has been a familiar pattern over the past several years. Because of it, the government began combined efforts to manage shortcomings in the government’s seasonal adjustment process. Even with this spring rally, though, economic analysts do not think it will meet the ambitious targets set by President Trump, who pledged to boost growth to rates of 4% or better. For 2017, economic experts believe growth will come in around 2.2%, which is where growth has been since the Great Recession recovery began in mid-2009.
Much of the April through June strength came from consumer spending, which accounts for 70% of economic activity. Spending grew at 2.8%, up from 1.9% in the first quarter. The economy also benefited from modest inventory reductions that hindered first-quarter growth. In other key categories, business investment in plants and equipment grew by 5.2%. However, housing construction fell by 6.8%. This comes after a surge in winter because of warmer-than-normal weather. A national homebuilder organization has said that land and labor shortages are limiting the pace of construction, even as the nation faces a shortage of affordable housing. Economists predict that housing will resume growth in the coming quarter.
Internationally, the U.S. dollar was weaker at the end of July. U.S. stock futures were pulling back, and European markets were in negative territory. But the Dow Jones industrial average, S&P 500 and Nasdaq all hit record highs at month’s end.
Technology stocks took a pounding because of now-familiar speculations about overvaluation. A decline in health-care and industrials stocks also had negative consequences for the S&P 500. And gains in telecoms, energy, and the consumer stocks did not offset these losses. Even so, these rate-sensitive sectors felt broad-based gains after the Fed refrained from raising rates.
That’s it for the August educational economic update. As always, if you have any questions or concerns about what we’ve discussed, please give our office a call
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