Ahead of the Bell: Economy-GDP

Javier Stokes
August 31, 2017

The government provides three estimates each quarter for GDP, the economy's total output of goods and services.

President Donald Trump has repeatedly cited as his goal raising U.S. economic growth at an annual rate of 3 percent after eight years in which former President Barack Obama could not reach this benchmark in any quarter.

According to economists surveyed by Reuters, second quarter growth was projected to increase at 2.7 percent.

The Trump administration had pledged to return the U.S. economy to sustained annual growth of 3.0 percent or more by slashing taxes and regulations while boosting trade. Most of the upward revision was due to stronger consumption spending, which expanded 3.3 percent from the initial estimate of 2.8 percent.

The Department of Commerce will issue its third estimate for the second quarter September 28.

On the downside, residential investment and state and local spending were weaker than in the first three months of the year.

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Economists are not looking for Hurricane Harvey to make much of an impact on economic growth, believing that a spike in the cost of gasoline and other energy prices will be short-lived as refineries along the Texas Gulf Coast resume operations quickly.

Meanwhile separate figures released by payrolls provider ADP showed the USA private sector added 237,000 jobs in August, massively overshooting analyst predictions of less than 185,000 and adding further support to the dollar. ADP said 178,000 jobs were created in July. The economy grew 2.1% in the first half of 2017 but economists said it was unlikely growth this year would meet Trump's goal. That was an improvement from the lackluster 1.2 percent rate in the first quarter. Trump submitted a budget to Congress in May that was based on achieving growth rates in coming years of 3 percent on a sustained basis.

For the entire year, Mark Zandi, chief economist at Moody's Analytics, is forecasting growth of 2.1 per cent.

Net exports added 0.21 percentage point to growth.

The first look at corporate profits for the quarter also bodes well for business investment and for hiring, which has been robust so far this year.

The result is a healthy upward revision from the government's initial estimate of 2.6% growth in the second quarter. American consumers remain in the driver's seat in the current expansion, backed by a strong job market, contained inflation and low borrowing costs.

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