- The U.S. economy is expected to have grown at its best pace in four years in the second quarter, and a part of the boost may have been from inventory building and exports ahead of the implementation of tariffs.
- Economists say it's difficult to say how much tariff-related activity added to the expected 4.1 percent growth.
- Some economists say it could be just a few tenths of a point, but NatWest Markets economists say it could have totaled a full point.
Economists say expectations for strong second-quarter growth may have gotten slightly higher due to exports and inventory building that appears to have been done ahead of the onset of trade tariffs.
Growth in the quarter is expected to be the best since 2014, with Thomson Reuters' consensus forecast at 4.1 percent, though some economists see growth above 5 percent. In fact, President Donald Trump tweeted Tuesday that the U.S. has the "best financial numbers on the planet," several days ahead of Friday's report on second-quarter GDP.
While economists agree pre-emptive activity around the tariffs may have been a factor, they do not agree how much it contributed to growth in the quarter. They say the impact could be anywhere from a couple of tenths to a full point, which is the forecast of NatWest Markets economists.
"Ironically in the second quarter, export growth appears to be a big positive for Q2 GDP," said Kevin Cummins, senior U.S. economist at NatWest. NatWest economists said exports in inflation-adjusted terms may have risen by nearly 10 percent annualized in the second quarter, narrowing the trade gap and adding possibly a full point to the output gain.
NatWest economists expect that inventories added a quarter of a percentage point to the headline gain in GDP, and combined, trade impact on the quarter amounted to the full point. NatWest economists are forecasting 4.5 percent for growth, and if not for tariff-related activity, it may would have been 3.5 percent, a full point lower, Cummins said.
Stephen Stanley, chief economist at Amherst Pierpont, said he believes the tariffs did propel some economic activity but it's really unclear. "Two things are driving strength in Q2. The first one is we're seeing a good solid rebound in consumer spending which was quite weak in the first quarter, at 0.9, and it looks like we're rebounding to over 3 percent in the second quarter." His forecast is for GDP growth of 4.8 percent.
"The second piece which is really arithematically important of the two is the massive narrowing of the trade deficit in Q2. There's a lot of moving parts. It looks like there's particular strength on the export side. I was just wondering if there were exporters trying to get their goods out before retaliatory tariffs came into place. We'll see. My guess is that some of that will reverse in the third quarter," he said.
Stanley said trade data contributed 1.7 points to GDP growth. "Exports grew very rapidly in real terms in the second quarter and imports were roughly flat which is unusual. I think it's hard to say if it has anything to do with policy. I think they are just one-off swings in some of the more volatile categories that may have played in as well. More often than not, when you get big swings, it turns out to be noise, but maybe there's more to it this time," he said.
Stanley said he was not expecting a big bump from inventory building.
Diane Swonk, chief economist at Grant Thornton, said she believes inventory building will be a factor, and it could be the result of companies trying to get ahead of tariffs that went into effect in July or even in anticipation of future tariffs. In fact, she said, there are some anecdotal signs that automakers are moving inventories around, ahead of possible tariffs on auto imports threatened by Trump.
"Putting numbers on it is really hard to do. There's going to be giveback at some point in time. It seems to be happening. there's no way to delineate how much it is," she said.
Cummins said soybean exports surged in the quarter and were a large contributor to U.S. export growth. It appears that soybeans may have been purchased in a rush of activity before Chinese tariffs went into effect July 6.
Richard Nelson, director of research at Allendale, said the more than 35 percent surge in soybean exports that shows up in weekly data may be attributable to other factors than just China stockpiling ahead of tariffs. "These would be sales made in the first quarter, maybe even in November and December," he said, adding many may also have been made to make up for problems in the Argentina soybean crop.
Cummins said he was aware of the issues with the Argentine crop but thinks that some of the exports to South America were heading to China to make up for the shortfall in Argentina.