U.S. economy posts best quarter in four years

By The Associated Press | September 27, 2018 | Last updated on September 27, 2018
3 min read

The U.S. economy grew at a robust annual rate of 4.2% in the second quarter, the best performance in nearly four years, though economists believe growth has slowed in the current quarter partly because of a drag from trade.

The performance of the gross domestic product, the country’s total output of goods and services, was unchanged from an estimate the Commerce Department made last month, the government reported Thursday.

The strong GDP performance has been cited by Trump as proof that his economic program is working.

“We’re doing much better than anybody thought possible,” Trump said at a Wednesday news conference.

However, a big part of that growth reflected a temporary rush to ship soybeans and other U.S. exports out before penalty tariffs triggered by Trump’s get-tough trade policies took effect.

Economists believe growth has slowed in the current quarter to between 3% and 3.5%, still a solid pace. While trade boosted GDP by 1.2 percentage point in the second quarter, due to a surge in exports, it is expected to trim growth by around one percentage point in the third quarter.

Still, economists believe the country is on track for annual growth this year of around 3%. That would be the best performance since 2005, three years before the 2008 financial crisis pushed the country into the worst recession since the 1930s. The country is currently in the 10th year of an economic expansion, the second longest in history. But growth has averaged a lacklustre 2.2%, making this the weakest recovery in the post-World War II period.

Trump often noted that performance when he campaigned for president, blaming the weakness on Obama administration economic policies. He pushed a $1.5 trillion tax cut through Congress last December and has emphasized deregulation and vowed tougher enforcement of trade agreements as ways to boost growth.

The administration is projecting growth will return to sustained rates of 3% or better over the next decade. However, others disagree with that assessment, forecasting growth will slow sharply in coming years as the impact of the tax cuts and increased government spending this year begin to fade. There is also an expectation that rising interest rates from the Federal Reserve will temper growth.

The Fed pushed its key policy rate up for an eighth time on Wednesday to a new range of 2% to 2.25%.

As he has done recently, Trump criticized that move, but Fed Chairman Jerome Powell told reporters at a news conference on Wednesday that outside criticism would have no impact on the Fed’s efforts to follow its mandate of promoting maximum employment and stable prices.

The Fed indicated that it planned to stick with its plan to raise rates one more time this year and another three times in 2019.

The government’s third and final look at second quarter GDP showed only minor and off-setting changes. Consumer spending, which accounts for 70% of economic activity, was unchanged at a solid growth rate of 3.8%. Business investment grew at a strong 8.7% rate, up slightly from last month’s estimate of an 8.5% growth rate.

U.S. durable goods

Orders for long-lasting U.S. factory goods rose at a healthy pace last month, though the increase was mostly driven by a surge in aircraft demand.

The Commerce Department said Thursday that orders increased 4.5% in August, the most in six months. Excluding aircraft, cars, and other transportation equipment, however, orders increased just 0.1%.

U.S. manufacturing is expanding at a solid pace, with orders up 9.2% year-to-date. Consumers are confident and spending more, and businesses have stepped up investment in machinery and equipment. Still, President Trump’s trade battles with China, Europe, and Canada pose a risk in the coming months.

A category of orders that is a proxy for business investment fell 0.5% in August after two strong months. Such orders are up 7.4% this year.

Orders for metals such as steel and aluminum rose 0.9%, after two months of flat or declining demand. Some of that increase may reflect the higher prices that steel and aluminum makers can now command with the Trump administration’s 25% tariffs tamping down imports.

Computer makers and auto companies reported declining orders.

Other measures of the factory sector also point to solid growth. A survey of purchasing managers found that factory activity expanded in September at its fastest pace in 14 years. Production soared and manufacturers added jobs at a faster pace.

And a measure of factory output tracked by the Federal Reserve rose 0.2% in August, led by a big increase in auto production.

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