US economy grows at 4.1% in Q2

World
Europe

00:56

The US economy grew at an annual rate of 4.1 percent in the second quarter of the year, higher than the 2.2 percent growth in the previous quarter, the US Commerce Department reported on Friday.

Personal consumption expenditures, which account for more than two-thirds of the overall economy, grew at an annual rate of 4 percent in the second quarter, up from 0.5 percent in the first quarter, according to the department.

Net exports unexpectedly added 1.06 percentage points to the second quarter economic growth as US businesses largely increased exports of foods, feeds and beverages ahead of retaliatory tariffs on US products, analysts said.

But trade is more likely to become a drag on the US economic growth in the months ahead, as the US escalates trade frictions with its major trading partners.

The European Union (EU), Canada, Mexico and other countries have announced retaliatory tariffs against US products in response to the US tariffs on steel and aluminum imports.

Economists also believed that the US economic growth is likely to slow down in the second half of the year as the fiscal stimulus gradually fades and the Federal Reserve further increases interest rates.

The US economy is expected to grow at 2.8 percent in the third quarter of the year, according to the latest forecast released by the Federal Reserve Bank of New York on Friday.

The Fed last month estimated that the US economy would grow at 2.8 percent this year, still below the Trump administration's target of over three percent of annual growth rate.

Trump declared victory

President Donald Trump, who ahead of Friday’s release of the gross domestic product report had promoted the notion that second-quarter growth would be robust, declared victory.

“We have accomplished an economic turnaround of historic proportions,” Trump told reporters. “These numbers are very, very sustainable.”

Contrary to Trump’s assertions, the economy enjoyed periods of robust growth during the Obama administration. GDP growth recorded a 5.1-percent pace in the second quarter of 2014, and the economy experienced four quarters of output above a 4-percent rate.

Economists also cautioned against putting much weight on the surge in second-quarter growth as one-off factors, including a 1.5-trillion-US-dollar tax cut package, were behind the growth spurt. The soybean boost is likely to reverse in the coming quarters, and the fiscal stimulus is seen fading in 2019.

“Pop the champagne today, but don’t get used to it, growth going forward has a lot of headwinds,” said Chris Rupkey, chief economist at MUFG in New York. “Unless you cut taxes again, there won’t be additional tax cut monies to line company and consumer pocketbooks.”

Growth seen slowing

While trade war fears helped to boost output last quarter, 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.

“The spring quarter could be the high water mark for growth,” said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania. “That said, there is every reason to expect that growth in the second half of the year will still be in the three percent range.”

Growth in consumer spending, which accounts for more than two-thirds of US economic activity, increased at a four percent rate in the second quarter. That was the fastest in three and half years and followed the January-March period’s stall-speed pace of 0.5 percent.

Households bought motor vehicles and spent more on health care, utilities, food and accommodation in the last quarter.

Consumer spending is also being driven by a robust labor market, which created an average of 215,000 jobs per month in the first half of this year.

The front-loading of deliveries of soybeans and other goods boosted exports in the second quarter, which grew at their quickest pace in the past four and half years, sharply narrowing the trade deficit. Trade added 1.06 percentage points GDP growth in the second quarter after being neutral in the January-March period.

The rush to offload soybeans, however, depleted farm inventories. Inventories declined at a 27.9-billion-US-dollar rate after rising at a 30.3-billion-US-dollar pace in the first quarter. They subtracted 1.0 percentage point from GDP growth.

Business spending on equipment slowed, and further moderation is likely, with trade wars casting a pall on the business spending outlook.

General Motors Co, Ford Motor Co and Fiat Chrysler Automobiles NV on Wednesday cut their full-year profit forecasts, citing higher steel and aluminum costs.

Harley-Davidson Inc. has warned that more expensive steel and aluminum and a 25-percent retaliatory duty imposed by the European Union on shipments from the United States could cost the motorcycle maker 45 million US dollars to 55 million US dollars this year.

Investment in home building fell for a second straight quarter. Government spending grew solidly, boosted by defense outlays.

Source(s): Reuters ,Xinhua News Agency