U.S. economy logs best performance in nearly 4 years

“U.S. economic growth was a bit stronger than initially thought in the second quarter, notching its best performance in nearly four years, as businesses boosted spending on software and imports declined,” Reuters reports. “Gross domestic product increased at a 4.2 percent annualized rate, the Commerce Department said on Wednesday in its second estimate of GDP growth for the April-June quarter. That was slightly up from the 4.1 percent pace of expansion it reported in July and was the fastest rate since the third quarter of 2014.”

“Businesses spent more on software than previously estimated in the second quarter and the nation also imported less petroleum,” Reuters reports. “Compared to the second quarter of 2017, the economy grew 2.9 percent instead of the previously reported 2.8 percent. Output expanded 3.2 percent in the first half of 2018, rather than 3.1 percent, putting the economy on track to hit the Trump administration’s target of 3 percent annual growth.”

“While consumer spending has remained strong early in the third quarter, the housing market has weakened further with homebuilding rising less than expected in July and sales of new and previously owned homes declining,” Reuters reports. “Growth in consumer spending, which accounts for more than two-thirds of U.S. economic activity, was lowered to a 3.8 percent rate in the second quarter instead of the previously reported 4.0 percent pace. Consumer spending increased at a 0.5 percent pace in the first quarter.”

“Overall exports rose at a 9.1 percent rate in the second quarter instead of the previously estimated 9.3 percent pace. Imports declined at a 0.4 percent rate, with petroleum accounting for much of the drop. Imports were previously reported to have grown at a 0.5 percent pace of increase,” Reuters reports. “That sharply narrowed the trade deficit. Trade added 1.17 percentage points to GDP growth in the second quarter rather than the previously reported 1.06 percentage points.”

Read more in the full article here.

MacDailyNews Take: As CNBC opens their headline:
Boom!

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U.S. consumer confidence shows Americans upbeat on jobs, economy – July 25, 2017

22 Comments

    1. There is always inflation when an economy expands, especially after it was mis-managed for 8 years of higher minimum wage, quantitive easing and 0% from the Fed.

      Anyone who knew the economy would come back to life knew there would be inflation and the tightrope is keeping it to a minimum.

      1. Come on, TT! You have more sense than that. You can make a point without skewing it with a partisan twist.

        Interest rates have been near zero since early in the Bush Administration, not just the past 8 years. That was actually one of the problems – when the housing crisis and financial collapse hit, there was no potential for stimulus by reducing interest rates. That was on top of a massive and growing deficit inherited from Bush.

        Furthermore, both you and KenC failed to truly address Patrick’s point. Net growth is what is important. The deficit-fueled tax stimulus does appear to be increasing growth. But it is also stimulating inflation. The net effect is what matters in terms of actual spending power, for instance.

        KenC, you should not that Patrick stated that the inflation rate is *up* 1%, not that is it 1%. The annual inflation rate has been around 2.1% for the last couple of years. If it has, indeed, increased by 1%, then that is a trend that deserves close attention going forward. But I do not know if that assertion is true.

            1. Of course it was fraud. When you rebundle worthless mortgages from banks and sell them as investments then the economy itself becomes (pardon the pun) a house of cards.

              It was stupid to force banks under Clinton to make these loans and it was stupid under Bush that it wasn’t stopped (although the Republicans tried….just not hard enough).

            2. You will get no argument from me that Bill Clinton was a polecat, but blaming the 2007-8 meltdown on Democrats is far from accurate or truthful.

              Many of the actions taken in the late 1990s and early 2000s that set the table for the crash were deregulation bills that were authored largely by Republicans and passed by a Republican House and Senate. Bill. Clinton- more a DINO than a Democrat- did sign off on these bills as he owed fealty to Wall Street.

              As Unions weakened in the US, the money behind the national Democratic Party was drying up and a group calling itself the Democratic Leadership Council was formed by Al From, Bill & Hillary Clinton and others. They proposed more “business friendly” policy than traditional Democrats in turn for campaign cash.

              There is plenty of blame to go around for the crash, but it was a systemic failure thanks to “captive” regulatory agencies that failed to do their job and a lap dog business press that was more cheerleader than watch dog.

              Like FDR said- we now know that organized money is just as dangerous as organized crime.

      2. My point is that when you compensate for inflation, real GDP growth is the same as it has been for the past 10 years.

        So, a bunch of new government debt for nothing. Actually, it nothing. Tax breaks for the rich and a big surge in stocks, another big boon for the top 2%. The bottom 98% doesn’t own any stocks because – nothing left to invest after paying the monthly bills.

    2. In contrast, in the latest socialist experiment, inflation is up 1 MILLION PERCENT in Venezuela.

      As an economy thrives there is always some inflation. Rising salaries, etc.

      President Trump has simply taken advantage of Laffer’s curve, which has been PROVEN to work as repeatedly often as the negative effects of high taxes and onerous regulation on business and economies.

      I’m glad I don’t have to love the oxymoron of fiscal liberals.

      1. At a zero tax rate, tax revenues are zero.
        At a 100%tax rate, tax revenues are effectively zero, since a government attempting to implement such a policy would face total non-compliance and rebellion.

        It stands to reason that tax revenues will ramp upwards with tax rate, flatten out and reach a peak at some point, then begin to rapidly decline as tax rates become excessive and people begin to evade taxes in greater numbers. That tax revenue curve represents an equilibrium between all of the factors involved. The key question has alway been, where is the peak of that curve than maximizes tax revenue versus tax rate?

        In order to make the case that tax cuts will “pay for themselves” through growth, you have to begin at a tax rate that is higher than the optimal tax rate that produces maximum tax revenue. If you start at the optimal tax rate or lower, then any reduction in tax rate will result in reductions in tax revenue, ceteris paribus. That is math. Take the derivative of the tax revenue curve, set it equal to zero, and solve. The resulting tax rate is the theoretical optimum.

        Republicans have never defined the optimal to target tax rate. All I ever hear is “lower is better.” But I have shown, above, that lower is only better up to a point. It is incredibly foolish to jump on the tax cut bandwagon when you do not know the optimal tax rate, particularly when those tax cuts are funded by deficit spending on the promise of future payback via economic growth. Furthermore, any growth effects will take many years to manifest, resulting in years of increased deficit spending.

        Can any of the die-hard Republicans on this forum identify the target tax rate? If so, can you provide any justification supporting that value? Everything that I have found on the subject indicates that we are already on the left-side of the Laffer curve in which tax rate cuts will result in tax revenue cuts over the short term and long term.

        My personal guess is that the optimal tax rate falls in the range of 25% to 35%.

        Read the Congressional Budget Office (CBO) entry at https://en.wikipedia.org/wiki/Laffer_curve. The fact is, no one can predict macroeconomic effects of tax changes with any degree of certainty.

        Take the recent Kansas tax experiment for example (same Wikipedia entry):

        “More recently, based on Laffer curve arguments, Kansas Governor Sam Brownback greatly reduced state tax rates in 2012. The state, which had previously had a budget surplus, experienced a budget deficit of about $200 million in 2012. Drastic cuts to state funding for education and infrastructure have been implemented because of the budget deficits.”

        Math always wins. Physics always wins. Wishful thinking almost always loses.

  1. President Trump cut taxes at the wrong point in the business cycle – and has increased the deficit at a point in the cycle where the government should be making surpluses. The state should be running a surplus at this point, such that it can cut taxes to cushion the downturn.

    It is definitely correct that the economy will now grow as a consequence of the tax cuts but the very real danger is that it will now overheat and result in inflationary pressure. An increase in interest rates by the Federal Reserve will likely result in an increase abroad in dollar denominated debts and choke off demand for American exports.

    I am in favour of tax cuts and lower government (which President Trump is not delivering) but this was not the point in the business cycle at which to stoke the economy. When the next downturn comes, there will be no money available to soften it.

  2. Lots of problems with the whole premise of this posting.

    1- Wall Street is not the economy. What was once primarily a place where enterprise found the financial resources to grow and expand has morphed over many years into a rigged casino that is more about financial sleight of hand than anything else.

    2- The reported CPI has been so modified over the years that it means little if anything to the person on Main Street. We have had little to no official inflation since 2008, but the prices of almost everything other than fuel have gone up dramatically. Take a grocery store ticket from 2008 and go buy the same items today, then calculate the price they should be by the official CPI- you will find out is is all bullshit. Same for housing, transportation, tuition and many other things.

    3- Away from the Gated Communities where the beautiful people live, there is a very different America. More than half cannot afford an unexpected $400 expense without a trip to the Pawn Shop or Check Cashing Loan Sharks as they cannot qualify for any or new credit. They literally are living from paycheck to paycheck and are constantly falling further behind. In today’s America everyone can get a job, but few can get a pay raise.

    4- A huge part of the run up in the stock market and real estate has been the funny money created out of thin air by the Fed and other central banks looking for a place to park. The very banksters that crashed the economy scooped up most of the bailout money and then profited with Fed QE money loaned to them at a rate lower than core inflation- essentially free. Little of that money has filtered down to Main Street.

    5- The huge run up in stocks since Trump has been caused by the expectation and now reality of the massive and unwise tax cuts that supposedly were going to create wealth on Main Street and grow the real economy. To date, the vast majority of the cash has been used to buy back stocks- one of the least efficient means of growing shareholder value.

    The markets and corporate America have become addicted to cheap money and the Fed’s relative inability to raise interest rates in any substantive way has left them without a bullet when the next downturn shows up, and it will.

    There is a business cycle and it has been warped by a decade of cheap money flooding financial markets worldwide. The wealthy and corporate America have for the most part not invested it in our economy, but rather have skimmed as much for themselves as possible and sheltered it from taxation.

    There is a bear coming and he/she is pissed.

    1. I often find myself at odds with your posts, DavGreg. But this one is spot on. You speak the truth. 2017 was a really stupid time for a massive tax cut, especially when combined with spending increases in 2018. You do not cut taxes when the economy has been growing for years (slowly, but steadily), unemployment is historically low and dropping, and the deficit is still large (and, now, growing rather than shrinking). Dumb move, unless you are a wealthy donor to the Republican Party or a wealthy POTUS – then you cash in. The pass-though aspect of the 2017 tax law will end up being the worst part of it – abused and used by Congress and their cronies to line their pockets.

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