The U.S. economy gets a lift from energy

By Ben Dickey

The economy expanded at an upwardly revised 4.2% in the second quarter. This is a good sign after the first half of the year averaged less than 2% growth. Since the dismal first quarter, the economy seems to be improving.

Some of the second quarter gains were due to pent up demand from consumers who stayed home during the bad weather in the first quarter. As they came back into the economy, businesses expanded their inventories which also added to the second quarter growth.

energy-sector-economy

 

Additionally, our exports grew more than our imports during the quarter. Are we finally seeing the acceleration we have been waiting for? It is too early to tell. As is the case most of the time, there is evidence of growth in the U.S. economy, which is getting a big lift from the domestic energy boom. There are also potential problems.

 

Mixed economic signals

Corporate profits surged in the second quarter. As a result businesses are beginning to spend on plant and equipment. In addition, construction loans are beginning to expand, posting the largest gain in its yearlong recovery in the second quarter. Lenders seem to be more willing to loan and there has been a rise in demand for loans.

As plant and equipment orders rise, demand for materials is increasing. Copper prices rose 3.3% during mid August. On the other side, consumer spending declined in July. With weak income growth, consumers are having a hard time keeping up their spending.

With evidence on both sides for the economy, most economists have lowered their forecast for the second half of the year to the 2.5% range, down from an earlier forecast of up 3.1%.

Geopolitical risks, as I have noted in previous comments, in the Ukraine, Iraq and Iran are having some effect on the worldwide economy. Europe is probably in another recession due to sanctions on Russia, ISIS has whipsawed oil prices and Chinese demand is slowing to the 6.5% growth range.

In my opinion, Brazil and Russia are in a very weak state. However, India is showing signs of expansion. World trade is expanding, although slower than our economy. Due to the overall global economic growth, bulk shipping rates seem to have stabilized or even expanded somewhat.

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