No signs of stopping the U.S. economy

Author: Portfolio Specialist Group

July 30, 2018

AGF Weekly Perspectives

“A recap of last week’s top economic news and what’s to come”

U.S. economy grinds higher

  • The U.S. economy grew at a 4.1% annualized pace in the second quarter of 2018, the strongest GDP growth rate in nearly four years.
  • Lower tax withholdings and strong consumer spending supported the gain in addition to business investment and exports. Real personal consumer spending rebounded sharply in Q2, rising 4.0%, and business investment grew 7.3%.
  • Exports alone contributed a full 1.0% to the headline number amidst trade concerns, though this was offset by a US$28 billion drop in inventories.

Trade tensions subside

  • President Donald Trump’s meeting with European Commission President Jean-Claude Juncker surprised markets with an agreement in principle to hold off on new tariffs between the U.S. and the European Union (EU) while forthcoming trade negotiations take place.
  • The agreement was welcomed by European automakers, which recently came under pressure with Trump threatening tariffs on cars and auto parts imported from the EU.
  • As part of the truce, the EU will also import more American soybeans and natural gas.

U.S. housing slows

  • U.S. existing home sales pulled back 0.6% in June and fell below 2017’s average volumes. The third straight monthly decline slowed year-over-year sales growth to 2.2%.
  • A shortage of properties pushed prices to record highs with median prices rising 5.2% annualized, which weighed on activity from prospective buyers.
  • New home sales also fell to an eight-month low in June, recording a 5.3% dip, signaling that U.S. housing may be leveling off after nearly six years of steady expansion.

Other economic news

  • The European Central Bank stuck close to previous messaging at their most recent policy meeting, suggesting rates will hold unchanged “at least through the summer of 2019”. The central bank’s comments were generally positive, however, noting trade concerns are still manageable and that inflation will likely rise over the medium term.
  • The Eurozone Manufacturing PMI improved slightly to 55.1 in July, ending six-straight months of decline. Elsewhere, U.S. manufacturing activity continued to trend higher, measuring 55.5 in July, while Japan’s Nikkei Manufacturing PMI fell to near-two year lows of 51.6.

What’s to come

Central bank meetings

  • The Bank of England and Bank of Japan will hold policy meetings during the week. While the Bank of Japan is expected to maintain status quo, the Bank of England has hinted at a 25 basis points hike. The eurozone is also set to report Q1 GDP growth as well as July’s inflation data.

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