The U.S. economy surged 4.1% from April through June, which was its fastest pace since late 2014. The growth was driven by spending by you (the consumer), business spending, and an increase in exports.
Most economists believe this brisk pace is not sustainable, and they expect growth in the second half of the year to pull back to a healthy 3%. This strong economic growth report will not have an impact on the Federal Reserve's actions as it meets this week to discuss the economy and short-term interest rates.
While an interest rate hike is highly unlikely (there’s a 2% chance, according to Bloomberg), Wall Street will be looking for clues as to whether the Federal Reserve plans to hike one or two more times this year.
Trade tensions between the U.S. and the rest of the world have dominated economic headlines for most of the year, but there appears to be some positive developments. Last week, President Trump and European Commission President Jean-Claude Juncker agreed to work toward zero tariffs and remove all non-automotive trade barriers.
This week, there will be a slew of earnings reports and important economic data releases. We are about half way through corporate earnings season, and the results have been very good. Compared to the same time last year, on average, profits have risen 24% and sales have increased about 10%.
The key economic releases due out this week are reports on inflation, manufacturing, services, and jobs. The jobs report is expected to show the economy added 193,000 jobs in July and that the unemployment rate dropped to 3.9% from 4.0%.
The Simply Money Point
While U.S. economic growth probably won't be able to sustain its pace from the second quarter, there will likely be very healthy growth around 3% for the rest of the year. Meanwhile, U.S. companies are reporting strong earnings, and this should continue for the remainder of 2018.
Historically, a growing economy and increasing earnings have been a good combination for stock investors.