- The US reported a 4.1% annualized growth; an excellent number is absolute terms.
- However, it did not beat expectations nor the hype.
- The limited USD “sell the fact” is unlikely to be sustained.
The US economy grew at an annualized growth rate of 4.1% in the second quarter of the year. This met analysts’ expectations. The components are also upbeat. Personal consumption is up by 4%; business investment grew by 7.3% and exports by 9.3%. The headline number is the fastest clip in four years.
The initial sell-off in the US Dollar is a result of the hype. A report by Fox News on Monday talked about a growth rate of 4.8%. President Donald Trump threw a few numbers in the air on Thursday evening. And the figures “only” met expectations. The greenback retreated across the board, but the moves are limited.
There is also understandable skepticism about future growth. Most economists see the high growth rate as a blip. The second half of the year may see a return to the “new normal” of 2.0-2.5% and some even fear of a “payback quarter”: a weak figure in Q3 to balance out Q2. On the other hand, the publication included revisions to previous quarters which were quite alright. Q1 was upgraded to 2.2% from 2.0% in the third release. This makes the 4.1% annualized growth rate even more impressive.
The Fed convenes next week and will likely comment on the figures when it convenes to make its rate decision next week. Fed Chair Jerome Powell and his colleagues will likely cheer the data, strengthening expectations for a rate hike in September. The greenback may forget the pre-GDP hype by then.
All in all, the news is good, and the hype around the figure took the ting out of the reaction. When the dust settles, the greenback could emerge as a winner.
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