The US economy recorded its strongest growth in 4 years in the three months ending June, according to revised figures released by the government. GDP increased by an annualized rate of 4.2% according to these new figures. The Commerce Department also noted that this quarter was the strongest in terms of growth since 2014. The upward revision came as a surprise to many economists who had predicted that the revised figures would reduce the projected 4.1% growth to 4%.
The markets responded very well to the news as Wall Street hit new highs on Wednesday. The S&P 500 and Nasdaq were all able to break records for the fourth consecutive session. The growth was also boosted by tech companies such as Amazon and Alphabet. Amazon, in particular, was cruising during the day’s trading rising by 3.4% as it edged closer to join Apple as the second company in history to be valued above $1 trillion.
President Donald Trump touted the current GDP growth figures calling at one point the growth “an economic turnaround of historic importance.” The Commerce Department attributed the upward revisions to higher levels of spending by local businesses on software and declining imports. The revisions put the economy well on track to meet the 3% growth target promised by the Trump administration.
However, economists are of the opinion that this current surge is temporary. Many doubt how sustainable it will be in the long run. The argument is simple. The current growth is simply a reflection of unique boosters including the $1.5 trillion GOP tax cuts. This may have helped improve consumer spending but the effect of these tax cuts may not be felt for a long time. In addition to this, growth in consumer spending for the same quarter was revised downwards to 3.8% after the Commerce Department initially reported a growth of 4%.
But this might change soon. According to the US Conference Board, the consumer confidence index has hit its highest level in 18 years. Consumer Confidence is a measure used to express consumer confidence and is seen as the most solid indicator of projected consumer spending. The US Conference Board says that this high level of consumer confidence should naturally continue to support growth in consumer spending over the coming few years.
This sharp increase in consumer confidence also comes at a time when the financial markets in the US have been hitting record highs since the February market correction. In the past two weeks, alone the S&P 500 has been up 3%. The rise in consumer confidence though is the most important takeaway in all this. In fact, President Trump was quick to tweet this once the data became available.
The Commerce Department attributed the rise to increased jobs supply. There has also been a modest increase in the number of US households describing current business conditions as improving. However, there’s still a certain degree of doubt regarding trade. The Trump administration has taken a very aggressive approach in trade negotiations. If this escalates, the current story might change without notice. There’s also the small issue of the federal deficit.