Growth in the world's largest economy was surprisingly strong in the period from April through June, owing largely to a substantial improvement to the trade account figures. According to the Commerce Department's second measure of Gross domestic Product, annualized expansion accelerated to a 3.3 percent clip through the period following the 0.9 percent pace of growth through the first quarter. For the market, this number was still very surprising despite it being a second reading on the data as the advanced reading (taken much of the data has not been accounted for) put economic activity at 1.9 percent.
From the breakdown in the report, there were clear drivers for this headline improvement; which temper expectatoins for the second half somewhat. By far, the biggest contribution to the strong revision was the improvement in trade figures through the three month period. With the still holding near historical lows and Americans' demand for foreign goods cooling with a general contraction in consumption trends, the trade deficit shrank to its lowest level in 8 years. In fact, the government's data shows exports (which jumped 13.2 percent on the quarter) contributed 3.1 percentage points to overall growth. Therefore, excluding this rebound, expansion would have only ran at 0.2 percent. Elsewhere, personal consumption (accounting for 2/3rds of growth) ticked higher from a 1.5 percent to 1.7 percent clip. Other improvements were less influential; but for the two aforementioned areas of growth, their outlook doesn't look like it will sustain such a strong rebound through the second half of the year. Many economists and market participants expect consumption trends to eventually weigh on growth going forward as income growth cools and unemployment rises. Even trade may be tempered as the US dollar rebounds and global economic activity slows. The concerns for the second half were clearly showing through in price action as the dollar actually sold off against most of its counterparts shortly after the release.