Bass And Treble

US economic growth hits 2.1%

Image source: Debby Wong, prochasson frederic, MDOGAN - Shutterstock

What's going on?

The US economy grew 2.1% larger last quarter than the same time last year, according to official data released on Friday – beating economists’ predictions. Yeehaw.

What does this mean?

The American economy’s growth slowed dramatically in the second quarter compared to the first, but that was pretty unavoidable. US firms imported less in the first quarter (perhaps waiting to see if trade tensions with China would pass), which improved the country’s “trade balance” and in turn gave the economy a boost. There was also lower demand from foreign buyers in the first quarter, which meant unsold products built up – but this reversed last quarter. US economic growth would have been much higher if it hadn’t.

Business spending also fell for the second quarter in a row, but that was partly offset by rising government spending – which climbed the most since 2009.

Why should I care?

The bigger picture: Don’t call it a comeback.

Consumer spending is one of the key barometers of the health of the US economy. In the first quarter, a strong overall economy distracted from lackluster shopping data. But this time around, it exceeded forecasts. American consumers still aren’t digging deep for big-ticket items like cars, but (perhaps thanks to rising wages) they’ve been going to town on coffees and burgers. That might be why Starbucks – which has seen major growth across its US stores – reported a stronger-than-expected quarterly update on Thursday, and why McDonald’s was licking its lips in its Friday report.

For markets: Central banks are the center of attention.

Despite the stronger-than-expected economic growth, the US Federal Reserve looks set to lower the country’s interest rates on Wednesday – a pre-emptive measure to sustain America’s longest-ever economic expansion. Across the pond, the European Central Bank has had the opposite problem. It’s primed to lower eurozone interest rates in response to weak economic growth – and may have sounded the alarm by suggesting the region’s countries will soon need to offer additional support to their respective economies.

Originally posted as part of the Finimize daily email.

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