US economy grows at 4.1% rate in Q2, fastest in 4 years

The US flag flies at the Port of Los Angeles in Los Angeles, California, on July 16, 2018.
The US flag flies at the Port of Los Angeles in Los Angeles, California, on July 16, 2018.PHOTO: REUTERS

Analysts cautious, citing trade tensions; Trump calls it 'miracle'

WASHINGTON • The US economy grew at its fastest pace in nearly four years in the second quarter as consumers boosted spending and farmers rushed shipments of soya beans to China to beat retaliatory trade tariffs before they took effect early this month.

Gross domestic product increased at a 4.1 per cent annualised rate as government spending picked up, the Commerce Department said in its snapshot of second-quarter GDP yesterday. That was the strongest performance since the third quarter of 2014. The result prompted US President Donald Trump to hail the figures as an economic "miracle", saying the 4.1 per cent quarterly growth rate was not a "one time shot". "As the trade deals come in one by one, we're going to go a lot higher," he predicted, seeing evidence that his economic policies are working.

Compared to the second quarter of last year, the economy grew 2.8 per cent. Output expanded 3.1 per cent in the first half , putting the economy on track to achieve the Trump administration's target of 3 per cent annual growth. A measure of domestic demand surged at a 4.3 per cent rate in the second quarter.

Ahead of the release, Mr Trump and his economic team had been promoting the notion that second-quarter growth would be robust.

Earlier in the week, he tweeted that the United States has "the best financial numbers on the planet".

The second-quarter rise in GDP was in line with economists' expectations. With yesterday's report, the government also published comprehensive revisions to prior GDP data, which did not change the previously presented economic picture. The US slapped 25 per cent duties on US$34 billion (S$46.3 billion) worth of Chinese goods effective from July 6, provoking a similar response from Beijing, which targeted soya beans and other agricultural products, and US-made cars.

Mr Trump has also imposed tariffs on steel and aluminium imports, leading to retaliation by US' main trade partners, including Canada, the European Union, Mexico and China. There was also a front-loading of exports of other goods in the second quarter.

With the trade-related boost expected to unwind in the second half of the year, economists caution against putting much weight on the April-June quarter growth. The economy will this year be supported by a US$1.5 trillion tax cut package and increased government spending in the last quarter.

But economists have begun to question whether it can continue at this pace in the face of trade tensions and rising rates. The stimulus is expected to fade next year.

Import duties are seen undercutting economic growth, with higher prices for goods discouraging consumer spending and businesses shelving investment plans. Economists in a Reuters poll earlier this week predicted that growth will slow notably from here.

For now, strong growth in the second quarter will keep the Federal Reserve on course to raise interest rates two more times this year. The US central bank increased borrowing costs in June for the second time this year and forecast two more hikes this year.

REUTERS, AGENCE FRANCE-PRESSE

A version of this article appeared in the print edition of The Straits Times on July 28, 2018, with the headline 'US economy grows at 4.1% rate in Q2, fastest in 4 years'. Print Edition | Subscribe