4% GDP Coming to America


Donald Trump may finally be about to get the growth he’s been promising. In three days, the U.S. will release second quarter GDP and if doesn’t miss badly, it will be the biggest of Trump’s Presidency. While it is an “advance estimate” of GDP growth the market is waiting on bated breath for the number. The final revised number won’t come out for a month or so later. However, often times market participants focus more on the first number than the second.

Atlanta Fed | Overly Optimistic or Overdue

The Atlanta Federal Reserve’s GDPNow forecast is targeting growth at 4.5% for Q2. The Atlanta Fed was way off in Q1. After targeting huge numbers, the economy grew at just 2.2%, which was revised down to 2%. So, why believe them this time? It appears the majority of economists are targeting a big number and with mid-term elections around the corner it couldn’t be coming at a better time for Republicans.

The blue-chip consensus, outlined by the line below, is targeting near 4% for Q2 GDP.

gdp growth estimates

Moreover, according to MarketWatch,

“…some Wall Street firms such as Macroeconomic Advisers estimate 5% GDP.”

 

GDP Growth May Hit Highest Level Since 2005

As mentioned GDP came it at a disappointing 2% in Q1. So, if it comes in at 4% in Q2 the last two quarters will average 3%. With two quarters to go, the U.S. will be on track to average 3% over the entire calendar year. The last time that happened was 2005. In fact,

“The past 12 years mark the longest stretch in the nation’s history in which GDP has failed to break the 3% mark.”

This was the rallying call for many Republicans and former Democrats who voted for Trump in 2016. The economy was anemic and the GDP numbers were there to prove it.

 

Trade Wars Won’t Weigh on Friday’s GDP Report

Something to keep in mind is that Q2 growth predates the ongoing trade spats with different countries. We’ve dubbed this the biggest summer in ten years for the market simply due to China-U.S. trade relations. Trump must get them to the table before the deadline of August 30th (when US$200 billion in tariffs will be implemented) to ink a deal or soaring GDP could be short-lived. In the meantime, this may all be apart of Trump’s master plan. All the more plausible when one considers Trump is known to attack people when they are weak and strike deals when they are desperate.

Trump may be waiting for these GDP numbers before going back to China or anyone else with a deal. In This is the Most Important Summer in a Decade, published on July 14th, we wrote,

“From an economic standpoint, China, at the moment, is vulnerable. With the U.S. booming, Trump is dealing from strength…”

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China’s GDP is stagnating while the U.S. appears to be entering its strongest period of growth since before the Great Recession. With Trump slashing regulations and lowering taxes the U.S. is arguably more competitive than at any time since the 1980s.

This Friday’s GDP growth numbers combined with a compromise or some path forward on global trade could shape the midterm election and the markets for the foreseeable future.