USA economic growth hits fastest rate since 2014

Hugh Fox
July 30, 2018

The U.S. economy grew by 4.1 percent in the second quarter of 2018, marking the fastest economic expansion in almost four years, according to a highly anticipated estimate released Friday by the Commerce Department.

The US economy accelerated to a 4.1 percent pace of growth in the second quarter, the fastest since 2014, letting President Donald Trump claim a win for his policies even though expansion is projected to cool. That's the fastest pace since 2014, driven by consumers who began spending their tax cuts and exporters who rushed to get their products delivered ahead of retaliatory tariffs.

The latest economic data signal business investment remains firm even as President Trump widens a global trade tariffs beyond steel and aluminum and into a growing range of products from China.

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". But many think the annual 4.1 percent growth rate last quarter is likely the high point for any one quarter.

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Still, Mr Lynch said he sees the pace of USA growth easing to an annualised rate of 2.9 per cent through the second half of 2018, from 3.1 per cent in the six months through June. In 2019, he expects a solid 2.6 percent growth rate. That means for the entire year, growth will be about 3%, not much better than we have seen in the past few years. Economic growth also increased by 2.9 percent in the fourth quarter, 3.2 percent during the third, and 3.1 percent during the second quarter of previous year.

Last December in this space, I argued that, combined with the removal of burdensome regulations, the tax cuts would stimulate economic growth. But most economists forecast it will fall back below 3 per cent soon afterward. "We've accomplished an economic turnaround of historic proportions".

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.

The unemployment rate is near a 40-year low and growth is solid, but by many measures the current economy trails other periods in USA history. We have to give the president credit here. Just before Beijing's retaliatory tariffs against the US started at the beginning of July, US soybean exports to China skyrocketed. "Unless you cut taxes again, there won't be additional tax cut monies to line company and consumer pocket books".

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Trump, who has repeatedly attacked the economic record of the Obama administration, pledged during the 2016 campaign to double growth to 4 percent or better. Helping the consumer is a healthy labor market, rising disposable income due to tax cuts, improved consumer confidence and the wealth effect of higher home and equity prices. The economy expanded 2.9 per cent in 2015, though it slowed the following year.

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