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Economy gathers steam; Q2 GDP growth is quickest since 2014

The US economy expanded at the fastest pace in about four years, in line with expectations, as households and enterprises spent more in the second quarter. The hectic activity in the export sector, ahead of the implementation of new tariffs by China, acted as a catalyst for growth.

Stock futures and government bond yields were mixed on Friday after data released by the Commerce Department showed gross domestic product (GDP) rose 4.1% in the three months ended June. It is the first time since the third quarter of 2014 that the economy is expanding at such a fast pace. The agency also revised up the growth rate for the first quarter from 2% to 2.2%.

The hectic activity in the export sector, ahead of the implementation of new tariffs by China, acted as a catalyst for growth

While the data adds to hope that the economy is finally emerging from the multi-year slump, some experts believe the main factors that triggered the uptick might not be sustainable. Nevertheless, the backdrop is conducive for spending to grow even further in the coming weeks, such as lower taxes, rising wages and easy availability of consumer credit.

There was a sharp increase in Soybean exports during the April-June period, when farmers aggressively pushed their China-bound shipments to avoid the tariff. Boosting the overall economic activity further during the second quarter, households spent 4% more on goods and services and investments by companies rose by 7.3%.

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The tax reform implemented by the government towards the end of last year and the more generous government outlays also contributed to the growth. These positive factors were partially offset by lower residential fixed investment and private inventory investment.

Meanwhile, some economists responded to the GDP numbers in a not-so-optimistic note, citing the Federal Reserve’s comparatively muted outlook for 2018 and similar instances of short-lived euphoria over GDP growth during the time of Barack Obama a few years ago. Also, it will be illogical to believe that the ongoing trade tension between Washington and Beijing would have any positive effect on the economy in the long term.

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