Tuesday 28 January 2020

US economy surges to 4.1% growth rate in second quarter

The figures have been driven by tax cuts and exporters rushing to get their products delivered ahead of retaliatory tariffs.

Mr Trump had pledged to get the US GDP to 4% or better (AP)
Mr Trump had pledged to get the US GDP to 4% or better (AP)

By Martin Crutsinger

The US economy has surged in the April-June quarter to an annual growth rate of 4.1%.

That marks the fastest pace of growth since 2014, and was driven by consumers who began spending their tax cuts and exporters who rushed to get their products delivered ahead of retaliatory tariffs.

The Commerce Department reported that the gross domestic product (GDP), the country’s total output of goods and services, posted its best showing since a 4.9% gain in the third quarter of 2014.

President Donald Trump is predicting growth will accelerate under his economic policies.

However, private forecasters cautioned that the April-June pace is unsustainable because it stems from temporary factors. The rest of the year is likely to see good, but with slower growth of around 3%.

Mr Trump, who has repeatedly attacked the economic record of the preceding Obama administration, pledged during his 2016 campaign to double growth to 4% or better.

The president said during a trip to Iowa and Illinois: “It’s only going to get better.”

The latest GDP figure was nearly double the 2.2% growth rate in the first quarter, which was revised up from a previous estimate of 2% growth.

Consumer spending, which accounts for 70% of economic activity, rebounded to a 4% annual growth rate after turning in a lacklustre 0.5% gain in the first quarter.

Construction personnel work on a building project just south of Chicago’s Loop (AP)

Consumers began spending their increased take-home pay on autos and other big-ticket items, spurred by the 1.5 trillion-dollar tax cut Mr Trump pushed through US congress in December.

Forecasters expect healthy consumer spending in the second half of this year but a slower pace than in the spring.

Another factor that bolstered the second quarter was a rush by exporters of soybeans and other products to get their shipments to other countries before retaliatory tariffs response to Mr Trump’s get-tough trade policies take effect.

Exports rose at a 9.3% rate in the second quarter, while imports grew at a tiny 0.5% rate.

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.

Business investment grew at a solid 7.3% rate in the second quarter.

Government spending also posted a solid gain, rising at a 2.1% rate.

The result was boosted by a budget deal at the beginning of this year that added billions to American defence and domestic spending. However, housing, which has struggled this year, shrank at a 1.1% rate after an even bigger 3.4% decline in the first quarter.

“The second quarter was a strong quarter, but it was juiced up by the tax cuts and higher government spending,” said Mark Zandi, chief economist Moody’s Analytics.

Mr Zandi forecast that growth for 2018 will hit 3%, the best annual growth rate in over a decade.

In 2019, he expects a solid 2.6% growth rate. But in 2020 – a presidential election year – Mr Zandi said he is forecasting economic growth of just 0.9%, a pace that is so slow that it will raise the threat of a recession.

Mr Zandi said: “We will come pretty close to stalling out in 2020 because the growth we are seeing now is not sustainable.”

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