The US economy grew at an annual rate of 4.1 per cent in the second quarter, the fastest pace in nearly four years, according to the US commerce department.
The GDP estimate is the first of three for the quarter, with the other releases scheduled for August and September when more data become available.
The rate of economic expansion marked the acceleration from the first quarter of 2018 when the world’s largest economy grew at an annual rate of 2.2 per cent.
Consumers – buoyed by low unemployment, low borrowing costs and recent tax cut – ramped up their spending at a 4 per cent annual pace, contributing 2.69 percentage points to second-quarter growth in GDP (consumer spending accounts for about 70 per cent of the US economy). The saving rate fell to 6.8 per cent from 7.2 per cent.
Nonresidential fixed investment – reflecting spending on commercial construction, equipment and intellectual property products – rose at a 7.3 per cent rate. Residential fixed investment fell 1.1 per cent.
Government spending increased at a 2.1 per cent rate, adding 0.37 percentage point to growth. Federal outlays rose 3.5 per cent, while state and local outlays advanced 1.4 per cent.
Exports grew 9.3 per cent. That reflected a surge in soybean exports ahead of retaliatory tariffs on the crop. With imports increasingly only by 0.5 per cent, net trade added 1.06 percentage points to the second quarter’s GDP growth figure. Strong growth in exports is unlikely to be sustained in the months ahead as President Donald Trump’s trade wars are seen as the potential drag on growth.
A drop in inventories subtracted 1 percentage point from the second-quarter growth rate, offsetting the gain from exports.
After stripping out the volatile categories of trade, inventories and government spending, sales to private domestic purchasers rose at an annual rate of 4.3 per cent.
The Federal Reserve is projecting two more rate increases this year to prevent the economy from overheating. Central bank officials have raised rates twice this year and they are widely expected to leave its benchmark rate unchanged at the Fed’s policy meeting next week and then increase it in September by a quarter of a percentage point, to a range between 2 per cent and 2.25 per cent.
President Trump called the second-quarter GDP growth data “very sustainable”. His plan is to boost growth to the above-3 per cent annual rate on a sustainable basis, exceeding the average 2.2 per cent pace during this expansion. Economists, meanwhile, expect expansion to settle back to near its long-run rate.
Photo: Martin Hesketh
