Second-quarter GDP surges to 4.1 percent, showing strength of 'Trump economy'

Lamar Ellis
July 28, 2018

And so, when the Commerce Department revealed Friday that the USA economy had grown 4.1 percent last quarter, the president did not respond by cautiously tempering expectations for future growth. "I think some of these components, which look great in the second quarter, won't look so great in the third, in particular the foreign trade numbers", he says.

"And I am thrilled to announce that, in the second quarter of this year, the United States economy grew at the awesome rate of 4.1 percent", the President said this morning.

Yet, even as he touted the benefits of future trade deals, analysts say the risks from tariff wars and a fading effect from tax cuts could limit the pace of growth going forward.

"By increasing growth to 3 percent over the next 10 years, that would mean 12 million new American jobs and $10 trillion of new American wealth at least", he continued, adding that the numbers are sustainable. But housing, which has struggled this year, shrank at a 1.1 percent annual rate after an even sharper 3.4 percent annual decline in the first quarter. In fact President Obama was responsible for 5 different quarters in which the US GDP expanded at a pace of 4% or greater.

The trade deficit in the second quarter dropped by $52 billion, adding 1.1 points to the GDP growth.

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Of course there will be criticism (including from me) on how Trump got this growth.

"The second quarter was a strong quarter, but it was juiced up by the tax cuts and higher government spending", said Mark Zandi, chief economist Moody's Analytics. The rest of the year is likely to see good, but slower growth of around 3 percent.

Households bought motor vehicles and spent more on health care, utilities, food and accommodation in the last quarter. The core PCE price index rose at a 2.2 percent pace in the January-March period. Others have suggested that exports were expedited to beat the imposition of retaliatory tariffs in July. "Producers may have front-loaded some goods for exports ahead of the tariffs", JPMorgan's Feroli said. After- tax incomes adjusted for inflation increased at a 2.6 percent annual pace, after 4.4 percent in the prior quarter. Government spending also posted a solid gain, rising at a 2.1 percent annual rate.

The US economy roared into high gear in the spring, growing at the fastest pace in nearly four years. The saving rate fell to 6.8 percent from 7.2 percent, which was revised from 3.3 percent as part of the comprehensive update.

Josh Bivens, director of research at the left-leaning Economic Policy Institute (EPI), wrote that the GDP data combined with the 2.2 percent figure from the first three months of the year point to a trajectory in line with growth that has been typical since the last recession. The revisions showed that growth in 2017 came in at 2.2 percent, slightly below the 2.3 percent previously reported.

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