Consumers, soybeans fuel US second-quarter growth

WASHINGTON (Reuters) - The U.S. economy grew at its fastest pace in nearly four years in the second quarter as consumers boosted spending and farmers rushed shipments of soybeans to China to beat retaliatory trade tariffs before they took effect in early July.

Gross domestic product increased at a 4.1 percent annualized rate also as government spending picked up, the Commerce Department said in its snapshot of second-quarter GDP on Friday. That was strongest performance since the third quarter of 2014.

January-March quarter GDP growth was revised up to a 2.2 percent pace from the previously reported 2.0 percent rate to account for new source information and methodology improvements.

RELATED: American soybean farmers

34 PHOTOS
American soybean farmers
See Gallery
American soybean farmers
Bruce Edler, 56, a farmer for 40 years, fills seed planters with soybean seed in Gideon, Missouri, U.S., May 16, 2018. Picture taken May 16, 2018. REUTERS/Shannon Stapleton
Farmer Jason Bean fills a soybean container at Bean and Bean Cotton Company in Gideon, Missouri, U.S., May 17, 2018. Picture taken May 17, 2018. REUTERS/Shannon Stapleton
Bruce Edler, 56, a farmer for 40 years, fills seed planters with soybean seed in Gideon, Missouri, U.S., May 16, 2018. Picture taken May 16, 2018. REUTERS/Shannon Stapleton
A soybean seeding tractor is replenished with soybean seeds in a field in Gideon, Missouri, U.S., May 16, 2018. Picture taken May 16, 2018. REUTERS/Shannon Stapleton
A soybean seeding tractor is replenished with soybean seeds in a field in Gideon, Missouri, U.S., May 16, 2018. Picture taken May 16, 2018. REUTERS/Shannon Stapleton
Carl Peterson, President of Peterson Farms and Seed, in his company's warehouse in Fargo, North Dakota, U.S., December 8, 2017. REUTERS/Dan Koeck
A worker takes a sample from an incoming truckload of soybeans at Peterson Farms Seed facility in Fargo, North Dakota, U.S., December 6, 2017. Photo taken December 6, 2017. REUTERS/Dan Koeck
A sample of clean, processed soybeans at Peterson Farms Seed facility in Fargo, North Dakota, U.S., December 6, 2017. Photo taken December 6, 2017. REUTERS/Dan Koeck
Samples of soybeans taken every hour during processing to monitor quality, are sorted for inspection at Peterson Farms Seed facility in Fargo, North Dakota, U.S., December 6, 2017. Photo taken December 6, 2017. REUTERS/Dan Koeck
Soybeans are sorted according to their weight and density on a gravity sorter machine at Peterson Farms Seed facility in Fargo, North Dakota, U.S., December 6, 2017. Photo take December 6, 2017. REUTERS/Dan Koeck
Technician Scott Guttormson checks the processing of soybeans on a gravity sorter at Peterson Farms Seed facility in Fargo, North Dakota, U.S., December 6, 2017. Photo taken December 6, 2017. REUTERS/Dan Koeck
Soybeans being sorted according to their weight and density on a gravity sorter machine at Peterson Farms Seed facility in Fargo, North Dakota, U.S., December 6, 2017. Photo taken December 6, 2017. REUTERS/Dan Koeck
A sample of soybeans sorted for inspection at Peterson Farms Seed facility in Fargo, North Dakota, U.S., December 6, 2017. Photo taken December 6, 2017. REUTERS/Dan Koeck
John Ziegler, plant manager at Peterson Farm Seed facility walks through a storage warehouse stacked with bulk tote bags of soybeans ready for shipment, in Fargo, North Dakota, U.S., December 6, 2017. Photo taken December 6, 2017. REUTERS/Dan Koeck
Soybeans grow in front of the Kentucky Utilities Ghent Generating Station, a coal-fired power-plant, along the Ohio River in Vevay, Indiana, U.S., September 22, 2017. Photograph taken at N38�45.502' W85�02.963'. Photograph taken September 22, 2017. REUTERS/Brian Snyder
John Weiss fears losing up to 50% of his soybean crops, which he had reported to the state board for showing signs of damage due to the drifting of Monsanto's pesticide Dicamba, at his farm in Dell, Arkansas, U.S. July 25, 2017. (Cotton is pictured behind him) Picture taken July 25, 2017. REUTERS/Karen Pulfer Focht
John Weiss pulls out some Pig Weed near his crop of soybeans, which he had reported to the state board for showing signs of damage due to the drifting of pesticide Dicamba, at his farm in Dell, Arkansas, U.S. July 25, 2017. Picture taken July 25, 2017. REUTERS/Karen Pulfer Focht
DWIGHT, IL - JUNE 13: Soybeans grow in a field on June 13, 2018 in Dwight, Illinois. The condition of U.S. corn and soybean crops in most regions is far outpacing last year's condition at this point in the season. (Photo by Scott Olson/Getty Images)
DWIGHT, IL - JUNE 13: Soybeans grow in a field on June 13, 2018 in Dwight, Illinois. The condition of U.S. corn and soybean crops in most regions is far outpacing last year's condition at this point in the season. (Photo by Scott Olson/Getty Images)
DWIGHT, IL - JUNE 13: Soybeans are loaded onto a truck before delivery to a grain elevator on June 13, 2018 near Dwight, Illinois. U.S. soybean futures plunged today with renewed fears that China could hit U.S. soybeans with retaliatory tariffs if the Trump administration follows through with threatened tariffs on Chinese goods. (Photo by Scott Olson/Getty Images)
DWIGHT, IL - JUNE 13: Farmer John Duffy (R) and Roger Murphy load soybeans from a grain bin onto a truck before taking them to a grain elevator on June 13, 2018 in Dwight, Illinois. U.S. soybean futures plunged today with renewed fears that China could hit U.S. soybeans with retaliatory tariffs if the Trump administration follows through with threatened tariffs on Chinese goods. (Photo by Scott Olson/Getty Images)
DWIGHT, IL - JUNE 13: Farmer John Duffy loads soybeans from his grain bin onto a truck before taking them to a grain elevator on June 13, 2018 in Dwight, Illinois. U.S. soybean futures plunged today with renewed fears that China could hit U.S. soybeans with retaliatory tariffs if the Trump administration follows through with threatened tariffs on Chinese goods. (Photo by Scott Olson/Getty Images)
DWIGHT, IL - JUNE 13: Farmer John Duffy (L) and Roger Murphy load soybeans from a grain bin onto a truck before taking them to a grain elevator on June 13, 2018 in Dwight, Illinois. U.S. soybean futures plunged today with renewed fears that China could hit U.S. soybeans with retaliatory tariffs if the Trump administration follows through with threatened tariffs on Chinese goods. (Photo by Scott Olson/Getty Images)
DWIGHT, IL - JUNE 13: Farmer John Duffy drives a load of soybeans to the grain elevator on June 13, 2018 in Dwight, Illinois. U.S. soybean futures plunged today with renewed fears that China could hit U.S. soybeans with retaliatory tariffs if the Trump administration follows through with threatened tariffs on Chinese goods. (Photo by Scott Olson/Getty Images)
DWIGHT, IL - JUNE 13: Farmer John Duffy loads soybeans from his grain bin onto a truck before taking them to a grain elevator on June 13, 2018 in Dwight, Illinois. U.S. soybean futures plunged today with renewed fears that China could hit U.S. soybeans with retaliatory tariffs if the Trump administration follows through with threatened tariffs on Chinese goods. (Photo by Scott Olson/Getty Images)
DWIGHT, IL - JUNE 13: Farmer John Duffy loads soybeans from his grain bin onto a truck before taking them to a grain elevator on June 13, 2018 in Dwight, Illinois. U.S. soybean futures plunged today with renewed fears that China could hit U.S. soybeans with retaliatory tariffs if the Trump administration follows through with threatened tariffs on Chinese goods. (Photo by Scott Olson/Getty Images)
DWIGHT, IL - JUNE 13: Farmer John Duffy loads soybeans from his grain bin onto a truck before taking them to a grain elevator on June 13, 2018 in Dwight, Illinois. U.S. soybean futures plunged today with renewed fears that China could hit U.S. soybeans with retaliatory tariffs if the Trump administration follows through with threatened tariffs on Chinese goods. (Photo by Scott Olson/Getty Images)
BLACKSTONE, IL - JUNE 13: Greg Lovins checks the quality of a load of soybeans being delivered to a Ruff Bros. Grain elevator on June 13, 2018 in Blackstone, Illinois. U.S. soybean futures plunged today with renewed fears that China could hit U.S. soybeans with retaliatory tariffs if the Trump administration follows through with threatened tariffs on Chinese goods. (Photo by Scott Olson/Getty Images)
Farmer Chris Crosskno watches as soy beans are loaded into his truck on Wednesday, Oct. 11, 2017, at his farm near Denton, Mo. Crosskno is busy harvesting all of his soy beans this month. (J.B. Forbes/St. Louis Post-Dispatch/TNS via Getty Images)
Farm worker Jamie Herron cuts and loads soy beans with his combine on Wednesday, Oct. 11, 2017, at Chris Crosskno's farm near Denton, Mo. Crosskno is busy harvesting all of his soy beans this month. (J.B. Forbes/St. Louis Post-Dispatch/TNS via Getty Images)
Truck driver Marion Howard watches soy beans load into his truck on Wednesday, Oct. 11, 2017, at Chris Crosskno's farm near Denton, Mo. Crosskno is busy harvesting all of his soy beans this month. (J.B. Forbes/St. Louis Post-Dispatch/TNS via Getty Images)
Soybeans are loaded into a truck during harvest in Princeton, Illinois, U.S., on Friday, Sept. 29, 2017. Soybean futures for November delivery rose 0.1% a bushel on the Chicago Board of Trade after falling as much as 0.5%, the lowest since September 13. Photographer: Daniel Acker/Bloomberg via Getty Images
Soybeans are loaded into a truck during harvest in Princeton, Illinois, U.S., on Friday, Sept. 29, 2017. Soybean futures for November delivery rose 0.1% a bushel on the Chicago Board of Trade after falling as much as 0.5%, the lowest since September 13. Photographer: Daniel Acker/Bloomberg via Getty Images
Harvested soybeans sit in a truck in Princeton, Illinois, U.S., on Friday, Sept. 29, 2017. Soybean futures for November delivery rose 0.1% a bushel on the Chicago Board of Trade after falling as much as 0.5%, the lowest since September 13. Photographer: Daniel Acker/Bloomberg via Getty Images
HIDE CAPTION
SHOW CAPTION
of
SEE ALL
BACK TO SLIDE

Compared to the second quarter of 2017, the economy grew 2.8 percent. Output expanded 3.1 percent in the first half of 2018, putting the economy on track to achieve the Trump administration’s target of 3 percent annual growth.

A measure of domestic demand surged at a 4.3 percent rate in the second quarter. Ahead of the release, President Donald Trump and members of his economic team had been promoting the notion that second-quarter growth would be robust.

Earlier in the week he tweeted that the United States has “the best financial numbers on the planet.”

The second-quarter increase in GDP was in line with economists’ expectations. With Friday’s report the government also published comprehensive revisions to prior GDP data, which did not change the previously presented economic picture.

The United States slapped 25 percent duties on $34 billion worth of Chinese goods effective July 6, provoking a similar response from Beijing, which targeted soybeans and other agricultural products as well as U.S.-made cars.

Trump has also imposed tariffs on steel and aluminum imports, leading to retaliation by the United States’ main trade partners, including Canada, the European Union, Mexico and China. There was also a front-loading of exports of other goods in the second quarter.

With the trade-related boost expected to unwind in the second half of the year, economists caution against putting much weight on the April-June quarter growth. The economy will this year be supported by a $1.5 trillion tax cut package and increased government spending in the last quarter.

But economists have begun to question whether it can continue at this pace in the face of trade tensions and rising rates. The stimulus is expected to fade sometime next year.

GROWTH SEEN SLOWING

Import duties are seen undercutting economic growth, with higher prices for goods discouraging consumer spending and businesses shelving investment plans. Economists in a Reuters poll earlier this week predicted that growth will slow notably from here.

For now, strong growth in the second quarter will keep the Federal Reserve on course to raise interest rates two more times this year. The U.S. central bank increased borrowing costs in June for the second time this year and forecast two more rate hikes for 2018.

The GDP report showed the Fed’s preferred inflation gauge, the personal consumption expenditures (PCE) price index excluding food and energy, increased at a 2.0 percent rate in the second quarter. The core PCE price index rose at a 2.2 percent pace in the January-March period.

Growth in consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased at a 4.0 percent rate in the second quarter, accelerating from the first quarter’s stall-speed pace of 0.5 percent.

Consumer spending is being driven by the lower taxes and a robust labor market, which created an average of 215,000 jobs per month in the first half of this year.

The front-loading of deliveries of soybean and other goods boosted exports in the second quarter, which grew at their quickest pace since the fourth quarter of 2013, sharply narrowing the trade deficit.

Trade contributed 1.06 percentage points GDP growth in the second quarter after being neutral in the January-March period.

The front-loading of soybean exports, however, depleted farm inventories. As a result, inventories were a drag on GDP growth, subtracting 1.0 percentage point after adding 0.27 percentage point in the first quarter.

Business spending on equipment slowed, rising at a 3.9 percent rate in the second quarter. Spending on equipment grew at an 8.5 percent rate in the first three months of the year. A further moderation is likely as the trade wars cast a pall on the business spending outlook.

General Motors Co GM.N, Ford Motor Co F.N and Fiat Chrysler Automobiles NV FCHA.MI FCAU.N on Wednesday cut their full-year profit forecasts, citing higher steel and aluminum costs.

Harley-Davidson Inc HOG.N has warned that more expensive steel and aluminum and a 25 percent retaliatory duty imposed by the European Union on shipments from the United States could cost the motorcycle maker $45 million to $55 million this year.

Investment in homebuilding fell for a second straight quarter in part as an acute shortage of houses available for sale reduced brokers’ commissions. Government spending grew at a 2.1 percent rate, quickening from the first-quarter’s 1.5 percent pace.

(Reporting by Lucia Mutikani; Editing by Jonathan Oatis and Andrea Ricci)

Read Full Story

Markets

DJIA 25,822.29 63.60 0.25%
NASDAQ 7,859.17 38.17 0.49%
NIKKEI 225 22,169.15 -50.58 -0.23%
HANG SENG 27,752.79 154.77 0.56%
DAX 12,384.49 53.19 0.43%
USD (per EUR) 1.16 0.00 0.04%
USD (per CHF) 0.98 0.00 -0.03%
JPY (per USD) 110.09 -0.04 -0.04%
GBP (per USD) 1.29 0.00 0.04%