GDP Rises As Expected Corporate Profits Reach 7 Year Peak
March 28, 2018
Trump negotiates trade deal with South Korea ahead of nuclear talks; GDP in 4th quarter increased from 2.5% to 2.9%, with consumer spending rising at fastest pace in three years; Corporate profits expected to be the highest in seven years.
- Trump negotiates trade deal with South Korea ahead of nuclear talks. President Trump secured his first significant trade deal this week, making a pact with South Korea. The deal opens the South Korea’s market to American autos by lifting existing limits on manufacturers like Ford Motor and General Motors, extends tariffs for South Korean truck exports and restricts the amount of steel that South Korea is allowed to export to the United States by nearly a third. The deal is expected to permanently exempt South Korea from Trump’s tariffs of 25 percent on steel and 10 percent on aluminum, yet South Korea will have to decrease its steel exports to the United States by 30 percent from its average over the past three years to about 2.68 million tons. After Canada and Brazil, South Korea was the third largest steel exporter to the United States last year. The agreement also was expected to double South Korea’s import quota for cars meeting U.S. safety standards – to 50,000 per manufacturer per year from 25,000 before that. According to South Korean officials, the 25 percent U.S. tariff for pickup trucks, due to begin a phase-out in 2019, would be extended for another 20 years. [NYTimes, CNBC]
Economic Indicators & News
- GDP in 4th quarter increased from 2.5% to 2.9%, with consumer spending rising at fastest pace in three years. The rate of growth in the economy in the fourth quarter of 2017 was increased to 2.9% from 2.5%, reflecting the largest increase in consumer spending in three years and higher investment in business inventories. Economists polled by MarketWatch had expected an annualized 2.8% reading in the government’s latest revision of the gross domestic product. The U.S. fell just short of a closely watched 3% growth marker after gaining 3.2% in the 2017 third quarter and 3.1% in the second quarter. Corporate earnings in the fourth quarter were effectively unchanged. In the government’s latest GDP update, consumer spending was revised to show a 4% increase instead of 3.8%, the largest gain since the end of 2014. The spending increase was mostly tied to higher outlays on transportation services including plane rides and package delivery. Businesses also spent more than expected, as investment in structures such as office buildings and drilling platforms was raised to 6.3% from 2.5%. [MarketWatch]
- Corporate profits expected to be the highest in seven years. Corporate profits for the first quarter are expected to run at the highest rate in seven years as companies begin to get the benefits of tax breaks, improving consumer confidence and a growing economy. There was a 17.2 percent growth rate in bottom-line profit for the S&P 500 – the best since the first quarter of 2011 – along with solid top-line sales gains of 7.2 percent, according to FactSet. More than 50 companies have already revised their guidance upward, a record number since FactSet began to keep track of this statistic in mid-2006. The outlook for Quarter 2 appears very optimistic: 19.1 percent earnings growth in Q2, 20.8 percent in Q3 and 17 percent in Q4, for a full-year growth rate of 18.4 percent on sales gains of 6.6 percent, according to FactSet. Earnings increased 11 percent in 2017 with a 6.4 percent gain in revenue. [CNBC]