The Commerce Department launched its preliminary estimate of second-quarter financial progress on Friday, offering the newest snapshot of the American economic system.
■ United States gross home product rose at an annual price of four.1 % in the second quarter, up from 2.2 % in the primary three months of the 12 months. It was the strongest quarter of progress since 2014.
■ Consumer spending rose four %, however non-public funding fell barely because the housing market cooled.
■ Exports rose 9.three %, pushed in half by a surge in soybean shipments tied to President Trump’s commerce insurance policies.
■ Consumer costs rose at a 1.eight % annual price.
Economic progress surged in the second quarter — however don’t anticipate the growth to final.
The second-quarter acceleration was extensively anticipated by economists, a results of a confluence of occasions unlikely to recur. Most economists anticipate progress to sluggish in the second half of the 12 months.
Still, current information does counsel that the tempo of progress has picked up this 12 months. Some economists assume full-year progress in gross home product could hit 3 percent in 2018 for the primary time in the practically decade-long restoration, a prospect that grew to become extra doubtless following Friday’s robust numbers. The second quarter was the primary time since 2014 that financial progress topped four % in 1 / 4; the economic system reached that stage or increased simply 4 instances through the eight years of the Obama administration.
“The bottom line is that the economy is doing better,” stated Diane Swonk, chief economist for the accounting agency Grant Thornton.
Mr. Trump, who had stated on Thursday that he could be proud of any progress determine above four %, celebrated what he known as the “amazing” G.D.P. quantity in remarks at the White House on Friday. And he pushed again in opposition to economists who say the second quarter’s progress price is unsustainable.
“This isn’t a one-time shot,” Mr. Trump stated. “I happen to think we’re going to do extraordinarily well in our next report, next quarter.”
Friday’s figures had been pumped up by a surge in exports, which accounted for 1 / 4 of the whole progress for the quarter. Paradoxically, the export growth was pushed in half by mounting commerce tensions, which led international patrons to replenish on American merchandise earlier than their governments imposed tariffs.
The pattern is especially clear in exports of soybeans, which had been up greater than 50 % in May from a 12 months earlier. Those patrons presumably didn’t need extra soybeans than traditional — they only needed them sooner. Exports will nearly actually hunch in the third and fourth quarters, and can flip right into a drag on total G.D.P. progress.
“We’re getting explosive growth in the second quarter because of trade,” stated Ellen Zentner, chief United States economist for Morgan Stanley. “You’ve got a big hole on the other side of that.”
A Stimulating Trend
Friday’s robust figures additionally mirrored a rise in authorities spending tied to the price range deal that Congress handed this 12 months. Federal spending rose at a three.5 % price in the second quarter. The results of the spending deal received’t be fairly as short-lived because the commerce bump, however they’re likewise momentary; economists assume the impression on progress will peak late this 12 months.
For a greater sense of the underlying tempo of progress, economists typically look at another measure that strips out commerce, authorities spending and the unstable inventories part. That measure, often known as “final sales to private domestic purchasers,” rose four.three % in the second quarter, up from 2 % in the primary three months of the 12 months.
Government spending isn’t the one coverage elevating financial progress. Republican tax cuts are most likely additionally taking part in a task, though the consequences are exhausting to quantify. Consumer spending rebounded in the second quarter after slumping in the primary.
“Consumers got a decent amount of cash after the tax cuts,” stated Joseph Song, senior United States economist for Bank of America. “We are starting to see some of that play out.”
Whether these insurance policies are a good suggestion is one other query. Many economists query the knowledge of passing what quantities to a deficit-funded stimulus package when unemployment is low and the economic system is robust. Few outdoors the White House assume a progress price of four % is sustainable in the long run.
Supporters of the tax reduce have argued that it’ll stimulate enterprise funding, which can enable the American economic system to develop sooner in the long run. But Michael Gapen, chief United States economist for Barclays, stated there was little proof of that up to now. Friday’s report confirmed that enterprise investments in gear grew at their slowest tempo since late 2016. That makes it extra doubtless that the tax cuts will lead the economic system to overheat, somewhat than paving the best way for a extra sustainable interval of stronger progress.
“Business spending is not picking up the way proponents of the tax cut had hoped,” Mr. Gapen stated. “We could be putting ourselves in the position where we get a boom followed by a bit of a bust.”
One of the few weak spots in Friday’s report got here in the housing sector, the place residential funding — a measure that features residence building — fell for the second time in a row and the fourth time in 5 quarters. Separate housing information earlier this week likewise confirmed a slowdown in the sector, which has typically served as an financial bellwether.
The View From Washington
Even with all of the caveats, Friday’s report is nice information for Mr. Trump, and for Republican congressional candidates hoping that the robust economic system will enhance their possibilities in the midterm elections this fall. The authorities received’t launch its preliminary estimate of third-quarter G.D.P. till Oct. 26, simply over per week earlier than Election Day, and after many citizens may have made up their minds.
The new numbers are unlikely to shock Federal Reserve policymakers, who’re anticipated to depart rates of interest unchanged at their assembly subsequent week. The report confirmed that inflation slowed a bit in the second quarter however stays near the Fed’s 2 % goal. Faster progress might make it extra doubtless that the Fed will follow its coverage of gradual price will increase, regardless of recent hints from Mr. Trump that he would favor to see charges keep low.
Reviewing the Revisions
In addition to the second-quarter information, Friday’s report included comprehensive revisions to financial information going again to the 1920s. Most of the adjustments had been minor, consisting largely of offsetting shifts of exercise from one quarter to a different. The revisions made progress look barely higher beneath President Barack Obama and barely worse in Mr. Trump’s first 12 months; the primary quarter of 2018, nevertheless, additionally seems a bit higher after the revisions.
The revisions yielded excellent news for family funds. Americans seem to have saved considerably extra final 12 months than beforehand believed, a discovering that would ease fears that charges of shopper spending had been unsustainable.
The revisions additionally function an essential reminder: Friday’s figures are preliminary, and can change as new information turns into accessible. Data on commerce and inventories is very unstable, and might result in massive revisions in later months.