Economy

Trump Boom Hits 4.1 Percent Growth Rate in Second Quarter

On Friday, President Donald Trump touted what appeared, on its face, to be vast economic growth.

He predicted it would be close, though economists surveyed by the Journal believe a figure of around 4.4% second-quarter growth is more likely.

GROWTH SEEN SLOWING Import duties are seen undercutting economic growth, with higher prices for goods discouraging consumer spending and businesses shelving investment plans.

Mr. Trump, who reached a truce this week with the European Union in a trade war, also noted that the US trade deficit fell by $52 billion in the second quarter.

Private forecasters cautioned that the April-June pace is unsustainable because, they say, it stems from temporary factors, including a rush by exporters of soybeans and other products to get their shipments out before retaliatory tariffs took effect. Some economists think full-year growth in gross domestic product could hit 3 percent in 2018 for the first time in the almost decade-long recovery, a prospect that became more likely following Friday's strong numbers.

Among the forces behind the pickup from 2 per cent growth in the first quarter is the biggest tax overhaul since the Reagan era boosting company and corporate spending.

Consumer spending is being driven by the lower taxes and a robust labor market, which created an average of 215,000 jobs per month in the first half of this year.

If it has a 4 in front of it, we're happy. Daniel Silver, an economist at JPMorgan Chase, forecast that soybean exports alone likely boosted GDP by 0.5 percentage point in the second quarter.

The narrowing trade deficit added a full percentage-point to growth in the second quarter, though economists are concerned that a full-blown trade war between the United States and China, the world's two biggest economies, will hurt growth going forward.

The transformation is also not as dramatic as Trump claims - and in many ways the 4.1 per cent annualized growth during the second quarter is in line with an economic expansion that just entered its tenth year. Government spending also posted a solid gain, rising at a 2.1 per cent rate.

The result was boosted by a budget deal at the beginning of this year that added billions to American defence and domestic spending. Federal outlays rose 3.5 percent, the second-fastest rate since 2014, boosted by defense spending.

With Friday's report the government also published comprehensive revisions to prior GDP data, which did not change the previously presented economic picture. Output expanded 3.1 percent in the first half of 2018, putting the economy on track to achieve the Trump administration's target of 3 percent annual growth. Growth has averaged just 2.2 per cent since mid-2009 through the end of past year, the same as previously reported. Growth reached 5.2 percent in the third quarter of 2014, before falling back to 2 percent in the next quarter.

The unemployment rate is near a 40-year low and growth is solid, but by many measures the current economy trails other periods in USA history.



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