Trump Breaks Tradition on GDP Figures

Geneva Stokes
July 31, 2018

According to the Associated Press, the economic uptick was driven by consumers who began spending their tax cuts and exporters who sought to get their products delivered ahead of retaliatory tariffs.

"As the trade deals come in one by one, we're going to go a lot higher than these numbers, and these are great numbers", he said. Daniel Silver, an economist at JPMorgan Chase, forecast that soybean exports alone likely boosted GDP by 0.5 percentage point in the second quarter.

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).

THE FACTS: Trump is correct that a lower trade deficit helped growth in the April-June quarter, but it's not necessarily for a positive reason.

Also nudging GDP growth upward were stimulus effects from the tax cuts that went into effect at the beginning of the year and a big increase in government spending.

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

Growth in consumer spending, which accounts for more than two-thirds of United States 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.

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President Trump has been steadfastly claiming that his policies will catapult the USA economy into a much higher rate of growth - 4 percent over the next few years. Excluding the tariffs-related bump, analysts estimate the economy probably grew at a 2.5 percent pace in the second quarter.

The growth was the fastest since 2014, following first-quarter growth of 2.2 percent that was revised up from 2 percent.

Economists have said exports largely increased in the last quarter amid efforts by United States companies to get products out before additional retaliatory tariffs take effect. Skeptics disagree, saying the 4.1 percent number from the second quarter was the result of a combination of factors that won't be repeated. The economy expanded 2.9 per cent in 2015, though it slowed the following year.

Outside of the GDP numbers, the economic schedule will also bring investors the final reading on consumer sentiment in July from the University of MI. "If one controls for the impact of the one-time increase in government spending, temporary tax boost and exports, that robust topline growth rate is closer to 3 percent". However, housing, which has struggled this year, shrank at a 1.1% rate after an even bigger 3.4% decline in the first quarter.

Chad Moutray, chief economist for the National Association of Manufacturers, credited the growth spurt to Trump administration policies. The president's team expects the economy to keep growth at a solid pace after 2018 as well.

Spending Power The data showed consumers' wallets grew at a slower pace. Excluding food and energy, the central bank's preferred price index rose at a 2 percent annualized rate last quarter, following 2.2 percent in the first three months of the year.

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