Jill on Money: What to expect in the second half of the year

The economy was on fire in the second quarter. According to the government, the real annualized gross domestic product was 4.1 percent, the strongest quarter since the third quarter of 2014. As a reminder, GDP measures the nation's total output of goods and services; it is released by the Bureau of Economic Analysis on a quarterly basis, with two subsequent monthly revisions to the advance estimate.

While GDP has become a quick way to measure the progress of the economy, it is just a broad brushstroke. The agency itself is exploring new data points "to provide a more complete picture of the distribution of economic growth and economic sustainability."

That said, GDP is still the standard for judging the pace of economic growth, and in the second quarter of 2018 the results were undeniably strong due to a combination of factors, including: a jump in exports, as foreign buyers snapped up U.S. goods (i.e. soybeans) before tariffs were enacted; the recently enacted Republican tax cuts, which propelled business investment; and an increase in consumer and government spending.

Will this go-go growth last throughout the year and beyond? Economists caution that we are likely to see a slower pace in the second half of the year, but for all of 2018, GDP is likely to expand by 3 percent. If so, that would be the best annual pace since 2005; it also means that the second-longest expansion on record has a shot of overtaking the longest one (1991-2001) a year from now.

Maybe you are like my octogenarian friend Mary, who when hearing about 3 percent growth, said "big deal!" My guess is that Mary recalls the halcyon days of growth, which was partially propelled by the government spending a ton of money on the Korean and Vietnam wars.

According to Bill McBride of the economics and finance blog Calculated Risk: "Other than the early period with a boost from military government spending, the growth in GDP has been tracking the growth in the labor force pretty wellI . . . If the labor force is growing quickly, GDP will be higher with the same gains in productivity. And the opposite is true."

During the past decade, not only did we have a massive recession, the economy has had to endure a shrinking labor force, which is why growth in general has slowed down.

Whether robust growth can continue is unknown, but clearly the big issue that could cloud the rosy picture is the simmering trade war. Since I last wrote about tariffs, the situation has escalated and then de-escalated, at least with the European Union.

After a July 25 meeting at the White House, President Donald Trump and European Commission President Jean-Claude Juncker announced that they would work together to: achieve zero tariffs on nonautomotive industrial goods; reform the World Trade Organization; reduce trade barriers; and continue to address trade policies — all of which were aspirational in nature, but certainly helped lower the temperature on the trade fears. The two sides will talk, but as they do, the U.S. steel and aluminum tariffs and the EU's retaliatory measures will remain in force.

As the trade conflicts continue, the Agriculture Department announced that it would be providing a $12 billion lifeline of emergency aid for farmers who are suffering financial consequences from the escalating trade conflicts. The package relies on a Depression-era entity and because it already exists, the package does not require new congressional approval.

The aid package is not expected to go into effect until after Labor Day.