The only thing everyone seems to agree about when it comes to the U.S. economy is that it is in better shape that other economies throughout the world.
Estimates for growth in gross domestic product (GDP) for the second quarter range from 3.8%, based on The Federal Reserve Bank of Atlanta’s GDPNow model, to 4.8%, based on an estimate from forecasting firm Macroeconomic Advisers, which was deemed the best forecaster of 2017.
In either case, during the second quarter the economy recorded its fastest growth since the third quarter of 2014 and exceeded the 3.3% average growth experienced from post-World War II until the financial crisis.
Conversely, first quarter growth was trimmed to 2.0% by the Commerce Department from a previous estimate of 2.2%.
Higher Sales, Higher Profits
On the pro-growth side, consumer spending boosted retail sales more than expected, while the economy essentially achieved full employment, as the number of job openings exceeded the number of unemployed Americans for the first time ever, 6.7 million to 6.3 million. Net exports also helped, adding about 1% to economic growth.
Another positive sign is that analysts have been raising their earnings estimates for publicly traded companies.
Howard Silverblatt, a senior industry analyst at S&P Dow Jones Indices, predicted a third consecutive quarter of double-digit earnings growth for the S&P 500. He estimated that operating earnings, which measure earnings without some one-time charges and gains, have risen 27% from the second quarter of 2017 across the S&P 500, because of federal tax cuts and higher sales, which are also related to tax reform.
“Spending by consumers, businesses and the government all appeared solid in the second quarter,” according to The Wall Street Journal. “Early data suggest output was further boosted by inventory investment and a surge in exports.”
However, The Journal added that economists believe output may be outpacing the economy’s long-run capacity for growth, “raising the possibility of a slowdown next year.”
Economists vs. Consumers
Trade is another factor that could dim U.S. growth prospects. Ironically, the boost in exports during the most recent quarter may be a result of exporters seeking to get ahead of impending retaliatory tariffs that have been announced on goods such as soybeans and bourbon.
Consumer confidence also ebbed slightly from 128.8 in May to 126.4 in June (1985=100), according to the Conference Board, although confidence remains as a historically high level.
So is 4% growth going to be a blip on the quarterly GDP chart or can we expect even more growth in the coming quarters?
“Everyone has growth slowing next year,” according to St. Louis Fed President James Bullard.
But it’s consumers and businesses, not economists, who determine the economy’s growth. If consumers continue spending, the economy will continue growing.