Economy Grew at 4.1% Rate in Second Quarter The U.S. economy grew at the strongest pace in nearly four years during the second quarter, powered by a rebound in consumer spending, exports and firm business investment.
(…) Compared with the second quarter a year ago, output grew 2.8%. (…)
Trade played a large role in the second quarter’s bumper growth. Net exports added 1.06 percentage point to the quarter’s 4.1% GDP growth rate, as exports rose strongly.
Earlier this month, the Commerce Department said U.S. soybean exports surged in the second quarter, delivering an outsize boon to economic growth even as China shifted much of its sourcing to Brazil in response to its worsening trade relations with the U.S. The export rally likely reflected efforts by buyers to get their soybeans before China’s 25% retaliatory tariffs on U.S. soybeans, which hit in July.
Inventories subtracted 1.00 percentage point from the quarter’s GDP growth rate. Both trade and inventories tend to be volatile categories. (…)
Friday’s report said personal-consumption expenditures rose at a 4.0% annual rate in the second quarter, the strongest rate of growth since the fourth quarter of 2014. Spending on durable goods alone contributed 0.64 percentage point to the second-quarter rate, the Commerce Department said. (…)
Nonresidential fixed investment—reflecting spending on commercial construction, equipment and intellectual property products like software—rose at a 7.3% rate after rising 11.5% in the first quarter.
Final sales, which measure the strength of demand for U.S. goods and services by excluding unsold goods that end up adding to business inventories, rose a strong 5.1% in the second quarter, compared with 1.9% in the first.
The housing sector, however, was lackluster for the second quarter in a row. Residential fixed investment fell at a 1.1% rate in the second quarter. (…)
Government expenditures were up at a 2.1% annual rate in the second quarter. (…)
Americans Have Been Saving Much More Than Thought, New Data Show U.S. households have been socking away a lot more money in recent years.
(…) The saving rate over 2016 and 2017 is now pegged at an average 6.7 percent, up from a previously reported 4.2 percent. (…)
But there’s a catch: Most of the revision to savings in recent years came about because small-business owners and other proprietors made more money to salt away, not because workers got bigger wage increases. (…)
U.S. Durable Goods Orders Rebound, Powered by Aircraft
New orders for durable goods strengthened 1.0% (3.2% y/y) during June after declines in the prior two months. The 0.3% May shortfall was revised from -0.6%. The latest gain fell short of expectations for a 3.0% increase in the Action Economics Forecast Survey. Orders declined at a 1.4% annual rate during the last three months.
A 2.2% increase (-6.2% y/y) in transportation equipment orders powered the rise in overall orders as it reversed a 1.4% May shortfall. Aircraft & parts orders surged 8.7% following a 2.0% drop. The gain reflected a 20.2% surge in defense aircraft bookings which were strong for the third straight month. Orders for motor vehicles & parts improved 4.4% (6.4% y/y) and reversed May’s decline. Excluding the transportation sector altogether, durable goods orders rose 0.4% (9.1% y/y) after a 0.3% rise, revised from a 0.3% fall. Non-transportation orders have surged at a 10.7% annual rate during the last three months.
Orders for nondefense capital goods increased 2.3% (-7.7% y/y) after a 2.2% May decline. Orders excluding aircraft increased 0.6% (8.3% y/y) following a 0.7% rise, revised from -0.2%. Defense capital goods orders decreased 11.6% (+4.7% y/y) after a 16.7% rise. (…)
THE ART OF THE DEAL
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Trump Tries to Ease GOP Trade Worries The Trump administration touted its truce with Europe to nervous lawmakers as evidence that its trade policies are starting to show results, but Republicans pushed for accelerated efforts on other trade fronts.
(…) “This is a real vindication that the president’s trade policy is starting to work,” Commerce Secretary Wilbur Ross told reporters as he traveled with Mr. Trump. Mr. Trump, he said, hopes to push for a global reduction in trade barriers, “but to get there, we had to take a route of trying to make it more painful for the other parties to continue bad practices.”
Back in Washington, Trump advisers got an earful from angry lawmakers on Capitol Hill, who blasted the administration’s approach, criticized the Europe pact as weak, demanded faster relief for ailing constituents and pledged to ramp up efforts to tie Mr. Trump’s hands in shaping trade policy going forward. (…)
With Republicans growing increasingly worried about losing control of the House this fall, fears aggravated by polls showing the unpopularity of Trump trade policies, Rep. Bill Huizenga (R., Mich.) read aloud to the White House advisers a text from a tool-and-die maker in his district who was facing higher raw-material costs because of the aluminum and steel tariffs. “I was making sure that they heard the message that this is not just uncomfortable—it’s painful and it’s damaging,” Mr. Huizenga later told reporters. He said that because his district also includes farmers, who are getting squeezed by the retaliatory tariffs, “we’re getting it coming and going in western Michigan.” (…)
As part of their campaign to reassure anxious lawmakers, Trump officials said they were moving to follow the European announcement with more trade deals. U.S. Trade Representative Robert Lighthizer told a Senate hearing Thursday morning that “we are close to beginning negotiations” with a number of countries, citing the Philippines and sub-Saharan Africa (!) as specific prospects. (…)
“I think we’re close to the point where we’re going to have that [NAFTA] finished,” Mr. Lighthizer said.
(…) officials indicated they didn’t anticipate any quick fixes in their expanding battle with China. In fact, they suggested their motivation for striking deals with Europe and others was an attempt to line up allies in their standoff with Beijing. (…)
But Mr. Trump, in that speech, and one earlier in the day in Iowa, appeared to exaggerate the extent that the Europe deal would help farmers, as sharply different explanations from Washington and Brussels emerged over just the breadth of agricultural talks.
“We just opened up Europe for you farmers,” Mr. Trump said in Iowa. And Mr. Lighthizer told Congress that “our view is that we are negotiating about agriculture, period. That’s part of the process.”
But the joint statement between the sides makes no mention of covering agriculture beyond a pledge to buy more soybeans, nor any promises to discuss addressing European agriculture tariffs and subsidies—a major source of trade tensions with the U.S. European officials said they had successfully rebuffed such a demand, making clear that no broader agricultural talks would be held. Officials on both sides said Europe also agreed to revive an old, unfilled pledge to buy more American beef.
The U.S. “heavily insisted to insert the whole field of agricultural products—we refused that because I don’t have a mandate and that’s a very sensitive issue in Europe,” Mr. Juncker told reporters after his joint announcement with Mr. Trump.
And while European officials did vow to try and buy more soybeans—to help offset American sales lost as a result of Chinese retaliation against the U.S.—they said that was really an affirmation of market forces, as prices for U.S. crops tumble, rather than a promise to buy a quota. (…)
Background stuff:
Most Americans say that the new tariffs the U.S. and China are imposing on each other’s goods have not affected their family’s financial situation to date, but more of those who have seen an impact say the tariffs have hurt rather than helped. Americans are much more likely to believe the tariffs have affected the economy, but again twice as many say they have hurt the economy rather than helped it.
(…) as is the case with views of the current impact, Americans predict the tariffs will be more harmful than beneficial. (…)
Perhaps because of the close association of the tariffs with Trump, assessments of their personal impact are colored by partisanship. Democrats who report an effect are decidedly negative in their assessment — 23% of Democrats say their family has been hurt by the tariffs, and 2% helped. Meanwhile, Republicans are more divided — 11% say the tariffs have benefited their family, and 7% say they have been detrimental.
A majority of Democrats, 56%, think the tariffs will make their family’s financial situation worse in the long run, while 7% think they will make it better. By contrast, 39% of Republicans believe the tariffs will improve their family’s financial situation and 12% expect they will make it worse. (…)
A majority of Democrats, 57%, believe the tariffs have already harmed the economy, and seven in 10 think they will make the economy worse in the long run. Republicans tend to think the tariffs have helped rather than hurt the economy so far, 28% to 16%. They are more convinced the tariffs will make the economy better the long run, with 62% holding this view.
And this:
Like the multitude of mere mortals who faced voters before him, Trump may finally be feeling gravity’s unforgiving pull as one summer scandal bleeds into another. A recent Quinnipiac University poll put the president’s approval rating at 38 percent. More troubling for Trump’s quislings in Congress should be the political beating Midwest voters are dishing out on the politician they helped elect president. According to an NBC News-Marist poll, only 28 percent of registered voters in Michigan believe Trump deserves to be reelected, while only 30 percent of those surveyed in Minnesota and 31 percent in Wisconsin believe he deserves reelection. Republicans are also trailing badly in generic ballot tests, and Democrats’ prospects for taking over the House and Senate continue to rise.
The WaPo:
A day before President Trump struck a preliminary trade deal with the Europeans, Republican Sen. Mike Rounds of South Dakota privately delivered a somber message to his Republican colleagues.
On his trips home of late, he told senators at their private weekly lunch, he was seeing fewer of the red “Make America Great Again” hats, the once-ubiquitous display of support for Trump.
Rounds’s comment, confirmed by two senators in the room who spoke about the meeting on the condition of anonymity, reflected a rising fear among Republican officials that Trump’s trade war was dimming enthusiasm among the party faithful — and potentially undercutting the GOP effort to keep control of Congress in November.
Republican anxiety about whether Trump’s trade war will undo the GOP’s message on the strong economy reached a fever pitch this week, with numerous Republican lawmakers coming out with sharply worded attacks on the president’s trade strategy. (…)
“We understand that they’re working on a number of other smaller [trade deals]. And, hopefully, those will start to come to fruition,” Rounds said. “That will make people in my part of the country a lot more comfortable with the negotiations.” (…)
Rep. Dan Newhouse (R-Wash.), who attended the trade meeting at the White House on Wednesday, said he thanked Trump for taking on the trade issue but informed him that China is the No. 1 customer for Washington state’s cherries.
“It’s really impacted our markets,” Newhouse said of China’s retaliatory tariffs. “I expressed to him our farmers are with you, but they’re also feeling the impact of these tariffs. And that’s when we talked about the importance of getting this done as soon as possible. And he understands that.”
“There’s a lot of angst in farm country,” Newhouse added. But he said the deal with the E.U. gave him more confidence in Trump’s approach. (…)
Forty-nine percent of voters said they thought raising tariffs and barriers to imports would do more to raise the cost of goods and hurt the economy, according to an NBC News/Wall Street Journal poll conducted this month. Just 25 percent said they believed the tariffs and barriers would help the economy. (…)
In the battle for the Senate, Republican officials are particularly worried about the impact of the tariffs in Tennessee, Florida, Missouri and North Dakota — all states featuring marquee contests that could decide the Senate majority. (…)
Fact is
The “deal” amounts to little more than a mutual promise to talk about reducing trade barriers on both sides of the Atlantic, and to impose no new ones in the meantime. Tariffs on industrial goods other than autos would be targeted for elimination. Europe embellished it with a pledge to buy more American soybeans, thus offsetting China’s tariffs on that product, and to import more U.S. natural gas in the distant future. Considering that the negotiating agenda Mr. Trump and Mr. Juncker sketched resembles the Transatlantic Trade and Investment Partnership that President Barack Obama tried to launch with Europe, you could almost say that all Mr. Trump has to show for his trade war with the European “foe” is a return to his predecessor’s policy, plus some beans.
The other fact is that Xi faces no elections during his lifetime…
Record Drop in Foreigners Buying U.S. Homes Foreign purchases of U.S. homes fell a record 21%, posing a fresh challenge to the slumping housing market, which has shown few signs of turning around.
(…) The sharp decline in purchases reflected higher home prices, a strengthening dollar and intensifying political tensions between the U.S. and other parts of the world, economists say. (…)
“This might be the first time in my career that I’m seeing more Chinese sellers than buyers,” said John Chang, a broker-owner at Engel & Völkers in New York City.
Mr. Chang said his clients have watched prices rise sharply in recent years and determined that now is their opportunity to “cash out.”
On a trip to China last week, Mr. Chang said he realized that Chinese news coverage of the U.S. is spooking would-be buyers. “It’s staggering,” he said of the negative coverage, including editorials saying now isn’t a safe time to invest in the U.S. and articles chronicling real-estate developments funded by Chinese investors that have gone bankrupt.
(…) Chinese buyers recently have been unable to get money out of their country (…).
A strong American dollar and tensions between the U.S. and Canada over trade negotiations have driven the pullback, according to agents. (…)
Germany Vetoes Chinese Purchase of Business Citing Security Grounds Decision to block the sale of Leifeld Metal Spinning is the first time security has been invoked to stop deal
China’s Economy Weakened Further in July, Early Indicators Show
(…) “Domestic businesses were dented by tightening financing conditions, while trade conflict hits exports and hurts market sentiment,” according to Fielding Chen at Bloomberg Economics, who aggregates the earliest available indicators on business conditions and market sentiment. (…)
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China eyes infrastructure boost to cushion growth as trade war escalates – sources China plans to put more money into infrastructure projects and ease borrowing curbs on local governments to help soften the blow to the economy from the Sino-U.S. trade war, policy sources told Reuters.
EARNINGS WATCH
As of yesterday night: 265 reports in, 82% beat rate and +5.0% surprise factor. Blended Q2 estimates now +22.6% (+19.5% ex-Energy, was +17.7% two days ago!) vs +20.7% July 1.
LONELY AT THE TOP
World breadth stinks:
- U.S. large caps solid well above rising moving averages:
- Fuelled largely by Nasdaq:
- All Nasdaq:
- Meanwhile, outside the USA, equities are weak and weakening:
Five years ago, then-President Barack Obama formally launched similar broad trade talks with the EU under Mr. Juncker’s predecessor. The talks made little progress, and the Obama administration subsequently focused on the Trans-Pacific Partnership with Asian countries. Mr. Trump blocked the pact immediately after taking office last year. (…) 
Facebook’s grim forecast: privacy push will erode profits for years
13/34–Week EMA Trend Chart
NDR Crowd Sentiment Poll (Current weekly sentiment reading is 67.7)
