Why Economic Growth Might Be Weaker Than It Looks

Why Economic Growth Might Be Weaker Than It Looks

Why Economic Growth Might Be Weaker Than It Looks

So, there's reason to believe that 4.1 percent GDP growth is not sustainable - and even it it were, some analysts think that might not be high enough to sustain the stock market's post-Trump boom.

Otherwise, the growth will temper off. Trump has kept his promise for one quarter - but he may not be able to keep it for a whole year.

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

The US economy expanded at an average annual growth rate of 2.2% between 2012 and 2017.

Business Investment The growth in nonresidential business investment contributed nearly 1 percentage point to growth though the 7.3 percent pace was slower than the first quarter's 11.5 percent.

Economists are generally predicting slower growth in the second half of the year, though, as the effects of the tax cut wear off and rising interest rates depress consumer spending. That was almost double the first quarter rate of 2.2 percent and the strongest pace in almost four years. Net exports added 1.06 percentage point to the quarter's 4.1 per cent GDP growth rate, as exports rose strongly. Consumers began spending their higher take-home pay on autos and other big-ticket items, spurred by the $1.5 trillion tax cut Trump pushed through Congress in December.

Economists have said exports largely increased in the last quarter amid efforts by USA companies to get products out before additional retaliatory tariffs take effect. As businesses and consumers reset on account of lower tax rates, year-over-year spending hikes will dissipate.

The U.S. dollar is thus strengthening against other global currencies, threatening to widen the U.S. trade deficit that Mr. Trump insists he can eradicate with his protectionist policies. Earlier this month, the Commerce Department said United States soybean exports surged in the second quarter, delivering an outsize boon to economic growth even as China shifted much of its sourcing to Brazil in response to its worsening trade relations with the US.

Business investment grew at a solid 7.3 percent rate in the second quarter. The result was boosted by a budget deal at the beginning of this year that added billions to defense and domestic spending.

"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. The stimulus is expected to fade sometime next year.

President Trump thinks this is just the beginning.

"Any administration would tout a strong GDP report like today's, but if it's not reaching workers' paychecks, which it isn't, then cease the applause and get to work on policy to reconnect growth to much more broadly-share prosperity", he said.

With the Friday data, the Commerce Department also released comprehensive GDP revisions going back decades. The recent stretch of subpar growth - just over 2 percent annually - is unprecedented.

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