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US Q2 GDP: Consumers Hold the Key, Growth Stalls

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  • The revised US Q2 GDP estimates released on Thursday. The US GDP increased 2.0% in the second quarter, according to the revised estimate. The advance estimate released last month. The estimate showed that the economy rose 2.1% in the second quarter.
  • While the US GDP growth has come down, the consumer sector still looks strong. Amazon, Walmart, and Target have risen 18.9%, 24.4%, and 67.5%, respectively, this year. The SPDR S&P 500 ETF (SPY) has risen 18.2% YTD.
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US Q2 GDP

The revised US Q2 GDP estimate released on Thursday. According to the revised estimate, the US GDP expanded at an annual pace of 2.0% in the second quarter. The advance estimate released last month. The estimate showed the US Q2 GDP growth at 2.1%. The revised estimate is in line with analysts’ expectations. However, US economic growth has come down. In the first quarter, the US GDP rose 3.1%, which was better than expected.

President Trump on the US economy

President Trump has claimed multiple times that the US economy is doing great under the current administration. However, the US Q2 GDP numbers show that growth rates are coming down. On Thursday, President Trump tweeted, “The Economy is doing GREAT, with tremendous upside potential! If the Fed would do what they should, we are a Rocket upward!” On several occasions, President Trump has lashed out at the Fed for putting the brakes on the US economy. Meanwhile, the Fed went ahead with a rate cut last month even though the advance estimate showed better-than-expected GDP growth. President Trump wasn’t too happy about the rate cut.

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Analyzing the US Q2 GDP

While releasing the revised US Q2 GDP estimate, the Bureau of Economic Analysis noted, “The revision primarily reflected downward revisions to state and local government spending, exports, private inventory investment, and residential investment that were partly offset by an upward revision to personal consumption expenditures.” Corporate investment, housing, and the inventory buildup haven’t been strong despite the US economy growing at a steady pace.

US consumers

US consumers’ unending propensity to consume has been holding the US economy together. Apparently, US consumers don’t believe the recession fears. Retail stocks have also outperformed markets this year. Walmart (WMT) and Target (TGT) have gained 24.4% and 67.5% YTD. Amazon (AMZN) has risen 18.9%. In contrast, the SPDR S&P 500 ETF (SPY) has gained 18.2%. Read US Economy: Consumers, Trump, and the Trade War to learn why the US consumer sector has been strong.

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Businesses don’t look too confident

The corporate sector doesn’t buy US consumers’ optimism. Business investment has sagged. Notably, business inventories are subdued, which might sound counterintuitive. Strong consumer demand should propel US companies to invest more in new plants and inventories. The trade war is bringing a lot of uncertainty, which dampens corporate investment plans. The US corporate sector looks amenable to buybacks in the absence of compelling investment opportunities.

Growth might be stalling

Meanwhile, US Q2 GDP growth fell from the first quarter. Several economists think that the US economy will slow down more due to President Trump’s trade war. Currently, the US consumer sector has been supporting the economy.

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