US GDP Growth Rebounds To 3.1% In Q1

Despite concerns over a slowing global economy and negative impacts of the ongoing trade war with China, the U.S. grew its gross domestic product by 3.1% in the first quarter of 2019, up from just 2.2% growth in the fourth quarter of 2018.

The growth was surprisingly strong given falling economic growth forecasts around the world, a volatile stock market, an ongoing trade war with China and more dovish commentary from the Federal Reserve.

Why It’s Important

After a fourth-quarter sell-off, the S&P 500 surged more than 14% in the first quarter, one of the strongest starts to a year in history. Concerns over a near-term U.S. recession eased, and economic growth numbers suggest the U.S. economy is on a stronger footing than previously feared.

U.S. GDP growth dropped from 4.2% in the second quarter of 2018 to 3.4% in the third quarter to just 2.2% in the fourth quarter before bouncing back to 3.1% to start off 2019. U.S. President Donald Trump has said he expects the economy to continue to grow at a 3% rate throughout 2019, but economists are expecting economic growth to slow to around 2% for the remainder of the year.

Last week, the Federal Reserve opted to maintain interest rates, but hinted for the first time that its next move could be a rate cut given the potential for a slowing economy.

In April, the International Monetary Fund cut its 2019 global growth forecast from 3.5% to 3.3%. The IMF specifically mentioned international trade disputes as a headwind to global economic growth.

In March, the European Central Bank cut its 2019 economic growth forecast for the Eurozone from 1.7% to 1.1% and announced a third round of bank stimulus that will begin in September and run through March 2021.

What’s Next

Investors will be watching the G20 summit this week for any signs of a trade deal between the U.S. and China that could take pressure off the economy in the near term. The U.S. and China exchanged another round of tariffs in May that economists anticipate will weigh on economic growth in the current quarter.

Investors initially cheered Thursday’s GDP number, sending the SPDR S&P 500 ETF Trust SPY higher by 0.4%.

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