Growth in the US remains strong. The second estimate for GDP growth in Q2 came in at 4.2%, up sharply from 2.2% in Q1. It was slightly higher than the initial reading of 4.1%. The result primarily reflects upward revisions to nonresidential fixed investment and private inventory investments that were partly offset by a downward revision to personal consumption expenditures (PCE).

The GDP deflator in the United States increased to 110.25 Index Points in the second quarter of 2018 from 109.37 Index Points in the first quarter. This is not a very dramatic increase in inflation.

The strong performance is surprising since various economic indicators have begun to show a modest decline. The housing market has been particularly weak. Pending home sales, for instance, declined 2.3% y/y in July, following a downwardly revised 2.4% drop in June. It marks the seventh consecutive month of annual contractions in pending home sales. Sales fell in the West (-5.8 percent), the Northeast (-2.3 percent), the Midwest (-1.5 percent) and the South (-0.9 percent).  Single-family home sales in July declined by 1.7% to the lowest level since October 2017.

At the same time the University of Michigan consumer confidence indicator declined to 95.3 in August, the fourth monthly downturn since April. If this decline is the beginning of a trend it will show up in the GDP growth numbers soon. So far the stock market has not indicated that a further decline is in the offing.

All this points to a general softening of the economy. President Trump’s impositions of tariffs is also hanging heavily over the development of economic activity. There is no doubt that the impact is about to be felt. Imports, which are a subtraction in the GDP calculation, were also revised down in Q2.