GDP sees the best single quarter growth since 2014

The U.S. economy’s 4.1 percent rate of growth in the second quarter, the fastest since 2014, owed plenty to exports along with gains in consumer and business demand. Sustaining such a lofty pace will be tough as the boost from tax cuts fades, although some drags — such as a drop in inventories — may turn into a positive.

Economists’ forecasts show growth will come in around 3 percent this year. That indicates a somewhat more moderate pace than the April-June results, though better than the 2.3 percent average growth in the expansion that began in 2009.

Household consumption, which accounts for almost 70 percent of GDP, rebounded to a 4 percent rate of growth, higher than projected and following a 0.5 percent advance in the prior quarter. This part of the economy looks all set to keep growing, economists predict, thanks to a confluence of factors. In addition to lower taxes under the biggest overhaul since the Reagan era, consumers’ purchasing power is benefiting from steady hiring, an unemployment rate that’s near the lowest since 1969, improving finances and contained inflation.

At the same time, the Federal Reserve is raising borrowing costs and wage growth remains modest. Consumers’ paychecks grew at a slower pace last quarter, with after-tax incomes adjusted for inflation increasing at a 2.6 percent annual pace, softer than the 4.4 percent rate in the prior quarter. The saving rate fell to 6.8 percent from 7.2 percent. Car sales, which have held up surprisingly well this year, may also have trouble maintaining their recent pace.

The power of tax cuts was evident in business investment, as well, with nonresidential business investment climbing at a 7.3 percent pace after the first quarter’s 11.5 percent jump. That contributed almost 1 percentage point to second-quarter growth. Within this component, spending on structures advanced 13.3 percent, driven by oil and gas drilling, following a 13.9 percent gain in the prior period.

Given that it was juiced by big incentives in the new tax package, it’s hard to say whether businesses will be inclined to keep up this torrid pace of investment in coming quarters. The energy sector may also provide less of a lift, as one indicator — the rig count — was already cooling toward the end of the second quarter, analysts said. In addition, residential investment was a drag on growth for the fourth time in five quarters amid signs that housing is poised for its broadest slowdown in years.

Charles Rex Arbogast / Associated Press Construction personnel work on a building project just south of Chicago’s Loop. The U.S. economy surged in the April-June quarter, growing at an annual rate of 4.1 percent.