Trump claims victory as GDP grows at fastest pace since 2014

Arturo Kim
July 31, 2018

The figures released on Friday by the US Department of Commerce showed the economy grew at the fastest pace since 2014 during from April to June.

"As the trade deals come in one-by-one, we're going to go a lot higher", Trump predicted, seeing evidence that his economic policies are working. "In our forecasts, the second quarter marks a high watermark for growth".

However, private forecasters cautioned that the April-June pace is unsustainable because it stems from temporary factors.

Another quarter of solid business spending on equipment is expected, though the pace has slowed from the double-digit growth experienced in the second half of 2017.

It's not traditional for presidents to comment on economic growth figures before they are released, but President Trump isn't exactly a stickler for tradition.

The economy will this year be supported by a $1.5 trillion tax cut package and increased government spending in the last quarter.

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

Consumer spending, which accounts for about 70 percent of economic activity, reached a 4 percent annual growth rate after a lackluster 0.5 percent rate in the first quarter.

Trump boasted the biggest takeaway is that the USA deficit dropped by more than $50 billion.

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While Trump praised the 4.1 percent annual growth rate in the second quarter, it exceeded that level four times during the Obama presidency.

About 25 percent of this quarter's growth is due to exports, with overseas companies buying up USA products before new tariffs set in. The U.S. economy grew by 2.9 percent in 2015 and 2006, and more than 3 percent in 2004 and 2005.

Government spending increased at a 2.1 per cent rate, adding 0.37 percentage point to growth.

The trade dispute with China, for example, prompted buyers to rush purchases of USA soybeans before Chinese retaliatory tariffs raised costs for that key market for America's largest agricultural export, according to analyst Mark Hamrick.

In Q2 of 2018, consumer spending grew 4%, while nonresidential business investment jumped 7.3%, both also considered strong numbers.

It is interesting that in a time of economic growth, the socialism is now embraced by many Democrats. His two-term average of 1.6 percent annual growth is the worst among post-World War II presidents.

"The bottom line takeaway is that this growth is not sustainable and it will slow in the second half of the year", said Lakshman Achuthan, co-founder of the Economic Cycle Research Institute.

He said the GDP numbers also underscored the urgent need for the job-training programs that the administration is pushing. 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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