Q2 GDP Increase Shows Solid Growth

Economic growth in the U.S. shows solid gains and confirms the administration’s policy approach is working to spur the economy to a new level. Today’s advance estimate of 4.1% gross domestic product (GDP) growth should give investors' confidence that regulatory reduction, tax cuts, and full employment are working to improve Americans’ prospects. Let’s not forget that the Q1 2018 GDP growth rate of 2.2% was a significant improvement over Q1 2017 GDP of 1.8%. This quarter’s 4.1% growth rate is dramatically better than Q2 2017’s 3.0%. Since the election, economic prospects in the U.S. have been on the rise. 2017’s GDP performance was stronger than 2016’s economic growth rate which indicated that the economy was faltering from the stronger but anemic growth rate averaged earlier in the recovery.

Consumer spending, which drives about 70% of GDP, was strong in the second quarter providing major support for the economy to move higher. As trade negotiation prospects improve, we expect consumer spending to stay strong supported by full employment and moderately accelerating wage gains. Corporate profits are stellar again so far this quarter and should encourage investors that economic trends are strong enough to support a continued bull market trend. 

With trends strong we need to remind investors that the economic recovery and bull market are getting long in the tooth. The President’s policy success could cause the Fed to increase the pace of monetary policy tightening which may eventually lead to a recession and a bear market. Without an unknown geopolitical shock, the second half of 2018 may prove better for investors than the first half.   

The source for all data used in charts and commentary is the Bureau of Economic Analysis.

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