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US Q2 GDP meets expectations, markets take the report in stride

In a Presidency marked by violating norms, President Trump’s comments talking up today’s US Q2 Advance GDP report were hardly surprising. During a rally at a steel plant in Illinois, the President noted that,

“Somebody actually predicted today 5.3 [percent growth]. I don’t think that’s going to happen…if it has a 4 in front of it, we’re happy. If it has like a 3, but it’s a 3.8, 3.9, 3.7, we’re OK. These are unthinkable numbers. If I would have used these numbers during the campaign, the fake news back there would’ve said he’s exaggerating.”

Based on the just-released figures, the President is “happy.” The first estimate of second quarter growth for the US economy came in at 4.1% annualized, the highest rate since 2014. Just as impressively, personal consumption grew at a 4.0% annualized rate, well above the 3.0% expected; unlike inventories or foreign trade, which tend to be volatile and inconsistent on a quarter to quarter basis, personal consumption is seen as a more sustainable, “true” measure of the underlying growth rate of the US economy.

The other aspects of the report were mixed, with exports surging +9.3% vs. only a 0.5% rise in imports as companies raced to export their products before tariffs took effect. Inventories fell, slicing a full 1.0% from the GDP reading. The personal savings rate spiked to 6.7% vs. 3.4% expected. Finally Core PCE, the Fed’s preferred inflation measure, came in at 2.0%, a tick below the 2.2% reading expected by economists. All in all, the US economy was seemingly in a “goldilocks” period in Q2, with strong growth and low inflation, though the main thrust of recent protectionist trade actions could take a bite out of the Q3 readings.

Market Reaction

Markets generally took the report in stride. The US dollar ticked down off the day’s highs, but remains well supported near the top of the weekly range. US stock futures saw a brief dip but have bounced back slightly and are pointing toward a flat to modestly higher open. Finally, US bond yields have ticked lower, with the benchmark 10-year bond yield dipping to 2.96% from 2.98% before the release.


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