US growth hits 4.1% in win for Trump
ACCELERATION IS FASTEST SINCE 2014 AS CONSUMER SPENDING GROWS 4%, MORE THAN ESTIMATED
The US economy accelerated to a 4.1 per cent pace of growth in the second quarter, the fastest since 2014, letting President Donald Trump claim a win for his policies even though expansion is projected to cool.
The annualised rate of gains in gross domestic product was just shy of the 4.2 per cent median forecast in a Bloomberg survey. It followed first-quarter growth of 2.2 per cent that was revised from 2 per cent, the Commerce Department reported yesterday. Consumer spending grew 4 per cent, more than estimated, while nonresidential business investment climbed at a 7.3 per cent clip.
Illustrating the volatility of some elements of GDP, net exports contributed 1.06 percentage point to the pace of growth, the most since 2013, partly on a surge in soybean shipments ahead of retaliatory tariffs. Inventories subtracted 1 point, the most since 2014, Commerce said, citing soybean stocks as well as those of drugs and sundries and petroleum and related products.
Risks from tariff wars
Nevertheless, the scorecard gives Trump a chance to highlight the success of his policies, including the biggest tax overhaul since the Reagan era, which probably boosted consumer spending and business investment. Yet the risks from tariff wars and a fading effect from tax cuts are among reasons analysts see difficulty keeping the economy growing at such a robust pace.
Even so, Federal Reserve policymakers are expected to continue their gradual pace of interest-rate hikes aimed at keeping the economy from overheating, without moving so fast that they could choke off growth.
The dollar and yields on 10year Treasuries declined after the report, which also showed inflation excluding food and energy was lower than estimated.
“The economy is doing quite well,” said Michael Feroli, chief US economist at JPMorgan Chase & Co. “It’ll be hard to repeat this performance on a sustained basis, as the boost to demand from tax cuts may fade, the dollar’s strength could curb exports and tariffs present a risk,” he said.
“The latest data won’t change the pace of the Fed’s interestrate hikes,” Feroli said.
Trump on Thursday was managing expectations for the release, saying the figures would be terrific even if growth might not be as high as 5.3 per cent. “If it has a 4 in front of it, we’re happy, while 3.7 per cent or above would be OK,” he said in Granite City, Illinois.
Economists’ forecasts for second-quarter GDP, the value of all goods and services produced in the nation, ranged from 3 per cent to 5 per cent. The GDP estimate is the first of three for the quarter, with the other releases scheduled for August and September when more information becomes available.
With yesterday’s data, the Commerce Department also released comprehensive GDP revisions going back decades. They showed a higher household-saving rate than previously reported, as well as faster growth in the first quarter of recent years, though the overall narrative of the economy’s performance over the last decade wasn’t much different.
The revisions also showed the economy surpassed $20 trillion (Dh73.4 trillion) in nominal dollars in the first quarter.
Recession
Even with the relatively strong pace of growth last quarter, most economists expect expansion to settle back to near its long-run rate, and some have flagged the risk of a recession in two years. While polls and historical trends suggest Democrats are primed for significant gains in November’s midterm elections, voters give Trump high marks for the economy.
Compared with a year earlier, second-quarter GDP rose 2.8 per cent, just shy of the 3 per cent mark, which was last reached in 2015. The Trump administration’s official goal is for sustained GDP growth of 3 per cent, which would well exceed the average 2.2 per cent pace during this expansion and the Fed’s longer-run expectation of 1.8 per cent.