July 30, 2018 — US Economy Continues to Fly

JULY 30, 2018 – US ECONOMY CONTINUES TO FLY

The US economy is growing at annual rate of 4.1%, this is the fastest pace experienced in four years. The last time the economy grew at a comparable pace was 2014, when it grew at 5.2% in the third quarter. All indications are the second-longest expansion on record is not yet done.

Consumer spending grew by 4% in Q2 from just 0.5% in Q1; spending was buoyed by the low unemployment rate, steady job growth and tax cuts.  Business investment was higher at 7.3%.  But low wages continue to be puzzling in this boom economy.

However, economists warned the pace may be unsustainable.  Such a robust rate of growth is hard to maintain. Growth hasn’t crossed 3% for 12-months in 14 years.  In fact, Q1 2018 GDP grew at only 2.2%, making the average for the last 6 months 3.1%.

Friday’s report makes it highly likely the Fed will continue to gradually raise short-term interest rates to prevent the economy from overheating.  Expectations are for two more increases this year and three in 2019.  The next increase in expected in September when interest rates should range from 2.0 to 2.25%.   We continue to recommend the use of interest rate swaps to guard against the expectation of rate hikes later this year and next.

 

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