Magic Beans (No, Not Really) Help Quicken US Economic Growth In 2Q

Economic growth? It all amounts to a hill of beans.

A really big hill of beans. Okay, we’re not being literal. But the economic data released Friday morning shows that rushing a lot of product out the door – in this case, the commodity that is soybeans – can boost results.

As noted by Reuters, among other publications, the economy grew at a pace not seen for four years, notching a pace for the second quarter of 4.1 percent on an annualized basis, and far above the pace seen in recent reports that came to about 2 percent (a bit more, actually).

Part of the surge came from a flurry of activity that can be traced to the agrarian community. Farmers scurried to get soybeans out the door and to China, in the midst of a trade war between the two nations that has heated up in recent weeks.

The tariffs took effect earlier this month and, of course, after the quarter ended. As has been previously reported, the tariffs on soybeans (and a number of other products) stood at 25 percent, for both China and the U.S. Trade was responsible for a full percentage point of the reported growth, a huge jump when considering that trade’s impact on the first quarter’s GDP growth was net neutral.

In the wake of the newest report, the first-quarter growth estimate also got a boost, ratcheted up by the government to 2.2 percent, an additional 20 basis points.

And the overall economic pace through the first half of the year stood at 3.1 percent, which would put growth on par with Trump administration goals of around 3 percent.

And yet, as the newswire noted, the tariffs taking effect are seen as hobbling that very growth, as consumers may rein in spending amid higher prices, while corporations pull back on investment plans. Indeed, business spending slowed to 3.9 percent from 8.5 percent in the first quarter of this year.

The growth just reported (even excluding the trade impact) may also keep the Fed on pace to boost interest rates this year, perhaps twice. For now, consumer spending remains healthy, at 4 percent in the second quarter, year on year, picking up from the relative staid 50 basis points in the first quarter.

For now, the consumer, the locomotive carrying two thirds of economic growth, continues to steam along. But we wonder whether all this talk of soybeans may make us think of rising prices, rising rates, wage growth that may not keep pace (remember that corporate slowdown) … and suddenly that soy latte looks less appealing. We are only joking slightly about the protein read across. Beyond the soy … might the purse strings pinch a bit? After all, trade wars, prolonged ones, have few positive trade-offs.