Big Win for Trump as GDP Growth Hits 4.1 Percent, Best in 4 Years
S E E D E D C O N T E N T
The U.S. economy grew at its fastest pace in nearly four years in the second quarter as consumers boosted spending and farmers rushed shipments of soybeans to China to beat retaliatory trade tariffs before they took effect in early July.
Gross domestic product increased at a 4.1 percent annualized rate also as government spending picked up, the Commerce Department said in its snapshot of second-quarter GDP on Friday. That was strongest performance since the third quarter of 2014.
January-March quarter GDP growth was revised up to a 2.2 percent pace from the previously reported 2.0 percent rate to account for new source information and methodology improvements.
Compared to the second quarter of 2017, the economy grew 2.8 percent. 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.
A measure of domestic demand surged at a 4.3 percent rate in the second quarter. Ahead of the release, President Donald Trump and members of his economic team had been promoting the notion that second-quarter growth would be robust.
Earlier in the week Trump tweeted that the United States has “the best financial numbers on the planet.” The second-quarter increase in GDP was in line with economists’ expectations.
The dollar trimmed gains versus a basket of currencies on the data, while Treasury yields retreated from session highs. U.S. stock index futures pared gains.
With Friday’s report the government also published comprehensive revisions to prior GDP data, which did not change the previously presented economic picture.
The United States slapped 25 percent duties on $34 billion worth of Chinese goods effective July 6, provoking a similar response from Beijing, which targeted soybeans and other agricultural products as well as U.S.-made cars.
Trump has also imposed tariffs on steel and aluminum imports, leading to retaliation by the United States’ main trade partners, including Canada, the European Union, Mexico and China. There was also a front-loading of exports of other goods in the second quarter.
With the trade-related boost expected to unwind in the second half of the year, economists caution against putting much weight on the surge in the April-June quarter growth. The economy will this year be supported by a $1.5 trillion tax cut package and increased government spending.
But economists have begun to question whether it can continue at this pace in the face of trade tensions and rising rates. The stimulus is expected to fade sometime next year.
GROWTH SEEN SLOWING
Import duties are seen undercutting economic growth, with higher prices for goods discouraging consumer spending and businesses shelving investment plans. Economists in a Reuters poll earlier this week predicted that growth will slow notably from here.
For now, strong growth in the second quarter will keep the Federal Reserve on course to raise interest rates two more times this year. The U.S. central bank increased borrowing costs in June for the second time this year and forecast two more rate hikes for 2018.
The GDP report showed the Fed’s preferred inflation gauge, the personal consumption expenditures (PCE) price index excluding food and energy, increased at a 2.0 percent rate in the second quarter. The core PCE price index rose at a 2.2 percent pace in the January-March period.
Growth in consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased at a 4.0 percent rate in the second quarter, accelerating from the first quarter’s stall-speed pace of 0.5 percent.
Households bought motor vehicles and spent more on health care, utilities, food and accommodation in the last quarter.
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.
The front-loading of deliveries of soybeans and other goods boosted exports in the second quarter, which grew at their quickest pace in 4-1/2 years, sharply narrowing the trade deficit. Trade added 1.06 percentage points GDP growth in the second quarter after being neutral in the January-March period.
The rush to offload soybeans, however, depleted farm inventories. Inventories declined at a $27.9 billion rate after rising at $30.3 billion pace in the first quarter. They subtracted 1.0 percentage point from GDP growth.
Business spending on equipment slowed, rising at a 3.9 percent rate after the first quarter’s solid 8.5 percent rate. A further moderation is likely, with trade wars casting a pall on the business spending outlook.
General Motors, Ford Motor and Fiat Chrysler Automobiles on Wednesday cut their full-year profit forecasts, citing higher steel and aluminum costs.
Harley-Davidson has warned that more expensive steel and aluminum and a 25 percent retaliatory duty imposed by the European Union on shipments from the United States could cost the motorcycle maker $45 million to $55 million this year.
Investment in homebuilding fell for a second straight quarter in part as an acute shortage of houses available for sale reduced brokers’ commissions.
Government spending grew at a 2.1 percent rate, boosted by defense outlays and quickening from the first-quarter’s 1.5 percent pace.
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Because countries are stock piling their soy beans. Thats the biggest reason for the GDP being 4.1%. After the tariffs take effect? It will NOT be 4.1%, it will be MUCH lower.
Even without the tariffs you won't see this as the start of anything.
Life is about to get complicated and difficult for many.
Oh, it's the Soy Beans? Here we thought 4% GDP represented robust economic growth. Somebody should have told Milton Friedman.
It's not " robust economic growth" when people are panic buying before the price goes up.
They're hedging against what they see coming that you don't.
Even says that in the article that you didn't read.
I don't think you understood it. The selling of Soybeans detracted from the GDP number (which accounts for a hell of a lot more than Soybeans).
Please read:
"The rush to offload soybeans, however, depleted farm inventories. Inventories declined at a $27.9 billion rate after rising at $30.3 billion pace in the first quarter. They subtracted 1.0 percentage point from GDP growth."
And nowhere in my comment did I mention soybeans.
I said there was panic buying to avoid the price increases coming.
The article brings that and other stark warnings you conveniently ignore.
lower prices on soybeans are good for American poultry, beef and hog farmers and consumers
This comment has a lot of verifiable facts. I put it in another article, but in addition to the 4.1% GDP there is a lot more and some of it is contained in this comment.
Just goes to show, like tenured professors, it's hard to get rid of them as it is with bad economists.
The Fed pumped trillions of dollars into the economy with Quantitative Easing, two stimulus packages and without all that money pumped into the economy, Trump would have inherited a 9 year old recession. Wasn't it Paul Krugman who said Trump would get us in a global recession that would never end? Without QE and stimulus packages and continuing Obama's economic policies he could have made that statement back in 2009 and it would have been more appropriate. Fortunately this country was saved from a certain disaster. Trump may be a liar, but the numbers don't lie, even though the MSM does.
It took Obama from the end of the last quarter of 2014 plus all of 2015 and all of 2016 to increase the Real Domestic Product Quantity Index as much as it has taken Trump to do it during 2017 plus 2 quarters into 2018.
It took Obama from the end of the third quarter of 2014, all of 2015 and all of 2016 to increase the Gross Private Domestic Investment as much as it took Trump to do the same thing from all of 2017 until the end of the second quarter of 2018.
Throughout Obama's years in office the fear of another recession was always a concern, but when it became evident it could be a reality, QE always came in to give the economy a kick to give the economy a boost. The biggest one was all of 2013 through October 2014 which is one of the reasons the GDP in 2014
The Dow was 25,451 on July 27,2018 and it was 18,589 on November 9, 2016, the day Trump was elected.
That's an increase of 6,862 since Trump was elected. It took the last two months of 2011, all of 2012, all of 2013, all of 2014, all of 2015 and all of 2016 for the Dow to go up as much as it has gone up with Trump in the last 19 months or one year and 7 months.
The Dow high before the recession was October 9, 2007 at 14,164 and the low for the Dow as it was ending was March 9, 2009 at 6,547. it took all of the remainder of 2009, all of 2010, all of 2011, all of 2012 until March 4, 2013 before it reached the level of 14,127 it was before the recession started.
I think the recession was declared over by May of 2009 and it took 4 years for the Dow to go back up to the pre-recession numbers of 14,127 and once it reached that level on March 4, 2013 it increased to 18,589 by the day Trump was elected which is an increase of 4,462 which is 2,400 less than it has gone up during the last 19 months. So it went up 2,400 points less in 44 months than what it has gone up under Trump in 19 months.
I go by numbers and the fact Obama survived off Quantitative Easing, Stimulus Packages and just being a good con artist fooling the low information people for 8 years.
Every time the economy looked like a recession was just around the corner with Obama, Quantitative Easing was used to avert it.
Trump did have one such quantitative easing, but it was QE of the public's tax burden and yes the rich and famous who pay all the public's salaries as well reaped the benefits. Instead of increasing the public debt the money was put back into the public's hands by those who owned the businesses including big corporations increasing the tax revenue to the government. Nearly half the people in this country don't pay any Federal taxes and many receive more money back after paying taxes on the job than they actually paid in, so no matter what you do other than increase the welfare expenditures will not affect them one way or the other, except it may have given some of them, those who wanted to participate in the renewed economy, a chance to participate in it.