GDP shows economy in 'good shape,' but markets wanted more

31 July, 2018, 17:53 | Author: Rachel Logan
  • US economy surges in second quarter grows at 4.1 percent rate

The growth rate was driven by consumers spending their tax cuts and exporters rushing to get their products delivered ahead of retaliatory tariffs.

Consumers - buoyed by low unemployment, low borrowing costs and recent tax cut - ramped up their spending at a 4 per cent annual pace, contributing 2.69 percentage points to second-quarter growth in GDP (consumer spending accounts for about 70 per cent of the U.S. economy). In 2016 when CNNMoney surveyed 11 economists, who claimed, "Donald Trump is dreaming" after then-candidate Trump said it's time to establish the goal of meeting four percent economic growth.

Private forecasters cautioned that the April-June pace may be unsustainable because it stems from temporary factors.

President Trump took credit in a proverbial victory lap on the White House's South Lawn, telling reporters that the high numbers are "sustainable". We'll stream it live on FOX 2 News now on our Facebook page.

This is the first time since the 2016 election that United States growth has hit the 4% target President Trump set himself during the campaign.

GDP's overall growth of 4.1% in the second quarter was almost twice the rate of 2.2% and 2.1%, respectively, in the two preceding quarters. "We are now on track to hit an average GDP annual growth of over 3 per cent and it could be substantially over 3 per cent", said the President. Consumers began spending their increased take-home pay on autos and other big-ticket items, spurred by the $1.5 trillion tax cut Trump pushed through Congress in December.

After next year, many economists expect growth rates to subside again, as the boost from tax cuts and federal spending dissipates.

Exports of US soybeans soared as companies sought to ship them to China before that country slapped tariffs on them in retaliation for USA tariffs on Chinese goods. It's the first time the economy has grown more than 4 percent in a quarter since 2014.

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However, she said the trends in the housing market, as well as the one-off boost in exports in the most recent quarter, call "into question the sustainability of above-trend topline growth looking out to the second half of the year". Both he and Shepherdson had predicted very strong second-quarter GDP growth of 4.5 percent or higher. Government spending also posted a solid gain, rising at a 2.1 percent rate.

Paul Ashworth, chief U.S. economist at Capital Economics, said Friday, "Overall, helped by the massive fiscal stimulus, the economy enjoyed a strong first half of this year but, as the stimulus fades and monetary policy becomes progressively tighter, we expect GDP growth to slow markedly from mid-2019 onwards". In fact, out of the 32 quarters that president Obama was in office, 15 of them had an annualized growth rate north of 2%.

President Donald Trump on Friday (Jul 27) hailed roaring U.S. economic growth as a "miracle", and said the quickest expansion in nearly four years was a vindication of his economic agenda.

"We will come pretty close to stalling out in 2020 because the growth we are seeing now is not sustainable", Zandi said.

He said the GDP numbers also underscored the urgent need for the job-training programs that the administration is pushing.

Growth in the first quarter was revised up slightly, from 2% to 2.2%, while the fourth quarter of 2017 dropped from 2.9% to 2.3%.

Market pros are also sifting through the government's revisions to the data, which resulted in changes in the last two first quarters and other adjustments.



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