GDP gal­lops at 2.6% clip in 2Q

Con­sumer spend­ing fu­els in­crease; home­build­ing slides 6.8%

Northwest Arkansas Democrat-Gazette - - BUSINESS & FARM - ALAN LEVIN

WASH­ING­TON — The U.S. econ­omy revved up this spring af­ter a weak start to the year, fu­eled by a surge in con­sumer spend­ing. But the growth spurt still fell short of the op­ti­mistic goals Pres­i­dent Don­ald Trump hopes to achieve through tax cuts and reg­u­la­tory re­lief.

The Com­merce Depart­ment said Fri­day that growth in the gross do­mes­tic prod­uct, the econ­omy’s to­tal out­put of goods and ser­vices, ex­panded at a 2.6 per­cent an­nual rate in the April-June quar­ter. That’s more than dou­ble the re­vised 1.2 per­cent pace in the first quar­ter.

The im­prove­ment was pow­ered in large part by ro­bust con­sumer ap­petite for items such as cloth­ing and fur­ni­ture.

The 2.6 per­cent GDP gain came in close to economists’ ex­pec­ta­tions.

“Con­sumers con­tinue to drive the econ­omy’s growth, but firmer busi­ness in­vest­ment is also a plus,” said Mark Zandi, chief economist at Moody’s An­a­lyt­ics. “Weaker hous­ing con­struc­tion was the only sig­nif­i­cant drag on growth in the quar­ter.”

Trump cam­paigned on a pledge to cre­ate growth rates of 4 per­cent or bet­ter. So far, his eco­nomic pro­gram has not ad­vanced in Congress.

Trump in May put for­ward a bud­get for next year that projects growth to steadily ad­vance in the com­ing years, hit­ting a sus­tained pace of 3 per­cent an­nu­ally by 2021. The Con­gres­sional Bud­get Of­fice and most pri­vate economists are less op­ti­mistic, be­liev­ing growth rates have the po­ten­tial of im­prov­ing only slightly from the lack­lus­ter rates seen in the cur­rent re­cov­ery, the weak­est in the post-World

War II pe­riod.

Also on Fri­day, the depart­ment’s Bu­reau of Eco­nomic Anal­y­sis is­sued an an­nual bench­mark re­vi­sion of its data go­ing back three years. The re­vi­sion slightly raised the growth rate over the past three years, enough to lift the av­er­age growth in this re­cov­ery, now the third long­est in U.S. his­tory, to an­nual gains of 2.2 per­cent, up from the pre­vi­ous es­ti­mate of 2.1 per­cent.

The 2.6 per­cent growth in the sec­ond quar­ter was the fastest pace since the econ­omy ex­panded at a 2.8 per­cent rate in the third quar­ter of last year.

Much of the strength in the April-June pe­riod came from con­sumer spend­ing, which grew at a 2.8 per­cent rate, up from a 1.9 per­cent growth rate

in the first quar­ter. Con­sumer spend­ing ac­counts for 70 per­cent of eco­nomic ac­tiv­ity. The econ­omy also ben­e­fited from more mod­est in­ven­tory re­duc­tions, which were a big drag on first quar­ter growth.

In the other ma­jor cat­e­gories, busi­ness in­vest­ment in plants and equip­ment grew at a 5.2 per­cent rate. Hous­ing con­struc­tion tum­bled at a 6.8 per­cent rate, a pay­back af­ter an 11.1 per­cent surge in the win­ter at­trib­uted to warmerthan-nor­mal weather. Economists say they be­lieve hous­ing will re­sume grow­ing in com­ing quar­ters.

A shrink­ing trade deficit added a mod­est 0.2 per­cent­age point to growth as ex­ports rose while im­ports, which sub­tract from the GDP, grew at a slower pace.

The govern­ment sec­tor grew at a 0.7 per­cent rate, driven en­tirely by a big jump

in de­fense spend­ing. Do­mes­tic fed­eral pro­grams and state and lo­cal gov­ern­ments all showed small de­clines.

Weak­ness in the first quar­ter that is fol­lowed by a stronger spring ex­pan­sion has be­come a fa­mil­iar pat­tern in re­cent years, prompt­ing the govern­ment to deal with flaws in the its sea­sonal ad­just­ment process.

Even with the spring re­bound, an­a­lysts be­lieve the econ­omy will be un­able to meet the am­bi­tious tar­gets set by Trump. For this year, many an­a­lysts be­lieve growth will come in around 2.2 per­cent, es­sen­tially where growth has been since the re­cov­ery be­gan in mid-2009.

Dur­ing last year’s pres­i­den­tial cam­paign, Trump at­tacked Pres­i­dent Barack Obama’s eco­nomic record and said he could jump-start growth through a pro­gram of

AP/MARK HUMPHREY

Con­struc­tion work­ers fin­ish the fram­ing on a res­i­den­tial com­plex in Nash­ville, Tenn., in mid-July. As gross do­mes­tic prod­uct ex­panded last month, hous­ing con­struc­tion tum­bled at a 6.8 per­cent an­nual rate.

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