Second quarter growth is expected to be a strong 4 percent or more, the best pace in nearly four years, thanks to a stronger consumer and surprise narrowing of the trade deficit.
Economists expect the economy grew by 4.1 percent in the second quarter, and their forecasts were in a wide range from about 2.5 percent to 5 percent, according to Thomson Reuters. Barclays says the tracking number for second quarter GDP is a whopping 5.2 percent. The report is expected Friday at 8:30 a.m. ET.
The consumer was a big part of the surge in GDP, with a solid recovery in spending after a weak first quarter.
"They're kicking up their heels a bit. There was a winter hibernation, and they've come back. It's a strong consumer quarter," said Diane Swonk, chief economist at Grant Thornton.
Although backward looking, the growth number has been widely anticipated, especially in Washington, where the Trump administration is eager that its policies are seen to be having a positive impact, especially with trade wars brewing. On Wall Street, it will also be big, as the bond market has been concerned that growth will not continue at a fast enough pace in the face of Federal Reserve interest rate hikes.
President Donald Trump said in a tweet this week the U.S. is "doing GREAT. Best financial numbers on the Planet." His top economic advisor Larry Kudlow said the number is going to be big. Second quarter GDP is reported at 8:30 a.m. ET Friday.
Trump on Thursday said he heard someone was predicting a 5.3 percent number, but he doesn't think that would happen. "If it has a 4 in front of it, we're happy," he said, adding he'd be happy if it it was a number in the high 3 percent range.
Armed with tax cut and a solid job market, the contribution from the consumer was more than 3 percent, according to economists.
"[Consumer spending] accounts for roughly two-thirds of GDP. The fact it's accelerating from about 1 percent to over 3 percent, you're going to get a big boost because of that," said Kevin Cummins, senior economist at NatWest Markets."The labor market has been pretty solid so income has picked up." Consumption was 4 percent in the fourth quarter.
The growth forecast also includes an unusual contribution from a narrowing of the trade deficit, which has been a drag on an annual basis, Swonk said. She expects it added 1.4 points to her 4.4 percent GDP forecast, the best contribution from trade since the financial crisis in 2009 when imports fell faster than exports.
There was a big jump in exports, particularly in May when economists say there was a surge in soy bean shipments. Cummins said that may have been due to buying by China ahead of implementation of its tariffs on U.S. agriculture products, earlier this month. But it may also have been due to purchases of U.S. beans to make up for a short fall in the Argentine crop, according to Rich Nelson, director of research at Allendale.
Source: NatWest Markets
Amherst Pierpoint chief economist Stephen Stanley also said the impact from trade was unusually large, and the last time there was such a big impact was in 2016, but it was a negative, 1.6 point drag from trade.
"Merchandise imports were somewhat lower in June than I had forecast due to a large retracement in the capital goods category after a May jump. In any case, despite the wider trade gap in June, the story for the quarter was a massive narrowing in the trade deficit, which will likely add over 1½ percentage points to Q2 GDP growth," said Stanley in a note.
Government spending should also help boost the growth number, as fiscal stimulus starts to kick in.
"After contributing 0.1 percent in the first quarter, federal government spending is going to contribute 0.3 in the second, and it builds , 0.4 in the third and 0.5 in the fourth. It's the strongest contribution form government spending since 2010," said Swonk.
Friday's report will also be accompanied by years of revisions that the government undertakes every five years. In this case, economists expect the government to try to smooth out seasonal disparities, such as the annual decline in the first quarter and the stronger jump in second and third quarter growth.