Consumer spending propelled U.S. economic growth to a 4.1 percent pace in the second quarter, the fastest since 2014, letting President Donald Trump claim a win for his policies even though most analysts see the high as temporary.
The annualized rate of gains in gross domestic product was just shy of the 4.2 percent median forecast in a Bloomberg survey. It followed first-quarter growth of 2.2 percent that was revised from 2 percent, the Commerce Department reported Friday. Consumer spending grew 4 percent, more than estimated, while nonresidential business investment climbed at a 7.3 percent 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, also on a decline in soybean stocks as well as those of drugs and sundries and petroleum and related products.
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 policy makers 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.
“I wouldn’t want to overstate the underlying strength in GDP growth based on Friday’s numbers,” Omair Sharif, senior U.S. economist at Societe Generale, said before the report. “There was a big boost from trade, but that’ll go away.” Going forward, “it’s highly unlikely we’ll get 4 percent growth, or even 3 percent on a sustained basis.”
‘Terrific’ Numbers
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 percent. “If it has a 4 in front of it, we’re happy,” while 3.7 percent 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 percent to 5 percent. 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 the Friday 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.