Wednesday, 22 August, 2018

United States economy surges to 4.1 growth rate in second quarter

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Leonard Rios | 31 July, 2018, 17:52

The figures released on Friday by the US Department of Commerce showed the economy grew at the fastest pace since 2014 during from April to June. The growth rate was driven by consumers spending their tax cuts and exporters rushing to get their products delivered ahead of retaliatory tariffs. "And I will say this right now and I will say it strongly, as the deals come in one by one, we're going to go a lot higher than these numbers, and these are great numbers".

Growth in consumer spending, which accounts for more than two-thirds of USA economic activity, is forecast accelerating from the first quarter's lethargic 0.9 percent rate, which was the slowest in almost five years.

For the year, the economy is likely to expand at a 3 per cent pace or more for the first time since 2005. Expectations were also high as President Donald Trump spoke about the number several times, including Thursday when he said he would be happy with a number with a 4 in front of it.

"We believe quarter two will represent a growth peak as the boost from tax cuts fades, global growth moderates, inflation rises, the Fed tightens monetary policy and trade protectionism looms over the economy", said Gregory Daco, chief USA economist at Oxford Economics.

Diane Swonk, chief economist at Grant Thornton, said the growth rate was likely to meet the White House's three per cent target for the year and noted that a sudden drop in business inventories in the second quarter could point to a rebuild in the latter half of 2018.

Growth in consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased at a 4.0 per cent rate in the second quarter, accelerating from the first quarter's stall-speed pace of 0.5 per cent. Businesses added 2.3 million jobs in 2016, before Trump took office, more than the 2.2 million gained in 2017.

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A measure of domestic demand surged at a 4.3% rate in the second quarter. The U.S. economy grew by 2.9 percent in 2015 and 2006, and more than 3 percent in 2004 and 2005. Government spending grew at a 2.1 per cent rate, quickening from the first-quarter's 1.5 per cent pace.

Economists have said exports largely increased in the last quarter amid efforts by U.S. companies to get products out before additional retaliatory tariffs take effect. Economists, meanwhile, expect expansion to settle back to near its long-run rate.

That is the fastest pace of growth in the gross domestic product (GDP) numbers since 2014. As a result, inventories were a drag on GDP growth, subtracting 1.0 percentage point after adding 0.27 percentage point in the first quarter.

The median projection of Fed policymakers for GDP, revised in June, sees the economy expanding 2.8 per cent this year, then easing to 2.4 per cent in 2019 and 2.0 per cent in 2020. The recent stretch of subpar growth - just over 2 percent annually - is unprecedented.

One reason why private economists aren't on the same page as the President is their wariness about what will happen when the unexpected $US300 billion boost to federal spending this year and next fades.

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