This morning’s macro updates reaffirm the case for cautious optimism on the outlook for the US economy. The revised second-quarter GDP data show that growth was substantially stronger during the April-through-June period: 3.7% vs. the initial 2.3% estimate (seasonally adjusted annual rate). In addition, today’s weekly report on initial jobless claims reveals that this leading indicator for the labor market remains close to multi-decade lows. In short, the latest figures suggest that business cycle risk for the US is still low.
The recent market volatility raises new questions about the sustainability of growth rates around the world—particularly in China and emerging markets overall. But from a US perspective, there’s still no sign of trouble in terms of the big-picture trend. To be fair, it’ll take several weeks at the least to decide if the latest market turbulence will have serious repercussions for US economic growth.
Meantime, it’s clear that a positive tailwind has been blowing through the weeks going into the recent selloff in financial markets. Today’s upward revision in GDP growth for the previous quarter makes this point in no uncertain terms. The US economy’s 3.7% increase in Q2 marks the biggest gain since last year’s third quarter. More importantly, today’s update confirms that that economy bounced back sharply from Q1’s sluggish 0.6% rise.
The revised GDP figures show that consumer spending advanced a healthy 3.1% in Q2, nearly double Q1’s pace of 1.8%. Meantime, exports bounced back in the second quarter, rising 5.2%, which reversed most of Q1’s 6.0% decline. On the other hand, the 8.6% quarterly increase in business investment in today’s Q2 revision—the most in eight years—is helpful but it could trigger some payback in the next quarter if corporate America decides that it needs to trim spending after such a strong gain.
In any case, the bullish trend in jobless claims through last week implies that positive macro momentum remains a prudent forecast for the near term. New filings for jobless benefits dropped 6,000 to a seasonally adjusted 271,000—close to the four-decade low of 255,000 that was touched in mid-July. The ongoing year-over-year decline in claims indicates that last week’s encouraging slide is no anomaly; rather, the latest drop reflects an ongoing decline that’s been in force for the last several years.
The real test for the economy is still ahead of us. If there are serious macro repercussions for the US in the wake of the latest warning signs from China and global markets, the signals won’t show up in the economic numbers for several months.
For now, however, the near-term outlook for US growth remains upbeat. Given the latest updates, it’s reasonable to expect that next week’s employment report for August will deliver more encouraging news.