U.S. economy surges to 4.1 growth rate in second quarter

U.S. economy surges to 4.1 growth rate in second quarter

U.S. economy surges to 4.1 growth rate in second quarter

The federal government will release its initial estimate of third quarter growth October 26, just 11 days before voters go to the polls, making it a key test of whether high growth appears to be sustainable. Notably, consumer spending perked up quite a bit, rising at an annualized 4.1% rate in Q2 - the fastest since 2014 - and almost double the gain in the previous quarter. The uptick was largely driven by solid consumer spending and a big expansion of US products sold overseas.

The economy faces two significant structural drags that could keep growth closer to 2 percent than 3 percent: an aging population, which means fewer people are working and more are retired, and weak productivity growth, which means that those who are working aren't increasing their output as quickly as in the past.

President Donald Trump is prematurely claiming he proved naysayers wrong in boosting US economic growth.

Ahead of the news conference, the president tweeted, touting the numbers.

In the second quarter, economic growth hit its fastest pace of growth since the third quarter of 2014. Soybean exports - a target of retaliatory tariffs from China and the European Union - shot up, likely in an effort to skirt the incoming tariffs.

President Donald Trump took the GDP report as an occasion to tout the numbers, notably because of a shrinkage in the trade deficit, an area of great interest, he noted. There was also a front-loading of exports of other goods in the second quarter. Heading into the midterm elections, they can point to the best economic growth in four years, coupled with the lowest unemployment numbers in 20 years.

The economy will this year be supported by a US$1.5 trillion tax cut package and increased government spending in the last quarter. The stimulus is expected to fade sometime next year.

Earlier this month, the Commerce Department said U.S. 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.

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Paul Ashworth, chief USA economist at Capital Economics, said Friday, "Overall, helped by the massive fiscal stimulus, the economy enjoyed a strong first half of this year but, as the stimulus fades and monetary policy becomes progressively tighter, we expect GDP growth to slow markedly from mid-2019 onwards".

Economists expect the ongoing trade war to curtail growth later this year as foreign companies buy less from the United States. "There are still areas of the country that have not fully come back and that's Trump's constituency", said Greg Valliere, chief global strategist at Horizon Investments.

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

Forecasters expect healthy consumer spending in the second half of this year but a slower pace than in the spring. Exports surged at a 9.3 percent annual rate in the second quarter, while imports grew at a scant 0.5 percent rate.

The front-loading of soybean exports, however, depleted farm inventories.

Excluding those two key swing factors of trade and inventories, real final sales to domestic producers grew at a 3.9% pace in the second quarter, up from the tepid 1.9% rate in the first quarter, and about even with the4.0% rate in the fourth quarter of 2017.

Years ago, the four percent mark was unheard of to many.

General Motors, Ford and Fiat Chrysler on Wednesday cut their full-year profit forecasts, citing higher steel and aluminium costs. Average hourly pay, before adjusting for inflation, is rising at about a 2.5 per cent annual rate, below the 4 per cent level reached in the late 1990s when the unemployment rate was as low as it is now.

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