Can US Economic Growth Hit Trump’s 3% Target?



US GDP growth bounces back in Q2

US GDP growth bounced back in the second quarter of 2017, recording 2.6% year-over-year or YoY growth—slightly lower than the 2.7% YoY growth analysts had estimated. This growth came after the 1.2% YoY growth in 1Q17—the slowest growth recorded in the past three years. The 1.6% YoY GDP growth recorded in 2016 was also the slowest growth of the past six years.

To see why economic growth is important, read The Airline Industry’s Cyclical Nature Is a Mixed Blessing.

Article continues below advertisement

The second quarter rebound largely followed growth in consumer spending, which grew 2.8%, matching analysts’ consensus estimates. This growth, in turn, was boosted by a steady job market, a gaining stock market, and a rising real estate market. Government spending, on the other hand, rose 0.7% YoY. Business investment also rose 8.2% YoY—the highest gain in the past two years. Trade growth also helped, as exports were higher than imports. Nonresidential fixed investment rose 5.2% YoY.


Though second-quarter results confirm that the first-quarter economic slowdown was temporary, the fact remains that it will likely be difficult to achieve Trump administration’s target of 3% YoY GDP growth for the year. The IMF (International Monetary Fund) has, in fact, reduced its US GDP growth target from 2.3% YoY to 2.1% YoY.

Achieving Trump’s growth target would mean growth in the three major drivers—the labor force, labor productivity and capital investment. Economists believe all three major drivers are bound to slow down in the next decade. Trump’s policies of strict immigration and removal of non-documented workers would mean a slowdown in labor force while an aging population restricts productivity growth.

Next, we’ll discuss the slowdown in consumer spending, which is an important driver of airline demand.

The PowerShares Dynamic Leisure & Entertainment ETF (PEJ) invests 19.2% of its portfolio in airlines, including ~5.0% of its portfolio in both Delta Air Lines (DAL) and American Airlines (AAL), 4.2% of its portfolio in United Continental Holdings (UAL), and 2.5% in JetBlue Airways (JBLU).


More From Market Realist