Economic growth picked up in the second quarter in the U.S., with a report of 3.9% GDP far exceeding the anemic growth that occurred in the first quarter. Higher levels of consumer expenditures, exports, and state and local spending contributed to growth for the quarter.
The U.S. economy has held up relatively well amidst reports of slower growth in China and other emerging economies and a continued downturn in the energy sector. In fact, U.S. economic expansion is in its sixth year, longer than the typical U.S. expansion which has averaged five years since 1945, according to Moody’s Analytics. Whether the expansion continues hinges not just on conditions at home, but also on the effects of the slowing global economy.
Anxiety about China and its impact on the world economy intensified in the third quarter, dominating headlines and at times overshadowing news about U.S. growth. China’s economy is on track to grow at its slowest rate in almost six years, with growth forecasts falling under 7% this year. While China still represents a major source of global growth, its GDP is far lower than its peak of 10% five years ago.
Slower growth in China is tied to lower demand for commodities and other products exported by the U.S. and other countries. Alt-hough American exports to China accounted for less than 1% of U.S. GDP last year, falling Chinese demand has been blamed for some of the recent distress in U.S. markets.
Also to blame was the surprise devaluation of China’s currency in early August. The roughly 2% devaluation of the yuan versus the dollar was aimed at boosting Chinese exports, but the move also roiled currency markets and global stock markets, showing the broad reach of China’s evolving capital markets.
Even with the recent downturn, China’s explosive growth over the last decade and a half has had a positive impact on global economic growth and stock market re-turns in China. It should be no surprise that an inevitable slowing of that growth should be felt on the downside as well.
While the rate of growth in China is subsiding, its overall contributions as the world’s second largest economy should continue to benefit the U.S. and world economy.For more economic and market commentary, see our October 2015 newsletter Colleen Harvey, CFA Portfolio Manager The information contained in this blog is general in nature and is intended for informational purposes only. Furthermore, this information should not be construed as a buy or sell recommendation. All expressed opinions are subject to change without notice. Because the facts and circumstances surrounding each investor’s situation differ, you should consult your financial advisor before taking any action based on this information.