Soaring Consumer Spending Drives GDP to 4.1% in Q2

Speaking at the White House President Trump called Friday's report of 4.1 percent economic growth in the second quarter

Speaking at the White House President Trump called Friday's report of 4.1 percent economic growth in the second quarter"amazing. AP

Growth in the first quarter was revised upward, from 2 percent to 2.2 percent.

"We have accomplished an economic turnaround of historic proportions", Trump told reporters at a White House briefing attended by his top economic advisers. But analysts warned that the healthy numbers come with several caveats.

Just recently, the Bureau of Economic Analysis (BEA) reported that the USA gross domestic product (GDP) grew at annual pace of 4.1% in the second quarter of 2018. "Ahead, rising inflation will limit real income gains, and higher interest rates may already be impacting housing markets". He cautions, however, that "it'll be hard to repeat this performance on a sustained basis", citing the diminishing boost from tax cuts and a headwind from a stronger dollar as factors in the months ahead. "We're seeing unemployment go down to levels we haven't seen since the 1990s".

Consumer spending grew 4 percent, more than expected, while nonresidential business investment climbed at a pace of 7.3 percent.

Vittert also weighed in on the issue of Trump's tariffs.

President Donald Trump hailed the latest U.S. growth statistics as an economic "miracle" Friday, saying the 4.1 percent quarterly growth rate was not a "one time shot".

Was It the Trump Stimulus? The economy will be supported by a $1.5-trillion tax cut package in 2018 and increased government spending in the last quarter.

TRUMP: The trade deficit - very dear to my heart because we've been ripped off by the world - has dropped by more than $50 billion.

House Speaker Paul Ryan was quick to claim credit, as well, tweeting, "4.1% GDP! Now you have to redo your forecast and figure out what to do with the rest of the year", said Ward McCarthy, chief financial economist at Jefferies.

Past presidents have generally refrained from mentioning any government economic reports the day before they're publicly released.

Paul Ashworth, chief U.S. 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".

Republicans jumped on the figures as evidence that their tax cuts and deregulation drive were working.

Knowing that a great GDP report was coming, the Washington Post - an anti-Trump broadsheet with a sports page and comic strips - preemptively tried to explain it away as "a blip".

Meanwhile, private investment actually fell over the second quarter - a development that contradicts the GOP's economic promises. Ian Shepherdson, the chief economist of Pantheon Macroeconomics, says the Trump administration's ongoing trade fight with China is a big threat to the economy. There hasn't been an increase like that in many, many years - decades. That's puts 2018 in line for the best economic growth in 10 years, according to the New York Times.

Years ago, the four percent mark was unheard of to many. "We are now on track to hit an average GDP annual growth of over 3 per cent and it could be substantially over 3 per cent", said the President.

GDP's overall growth of 4.1% in the second quarter was almost twice the rate of 2.2% and 2.1%, respectively, in the two preceding quarters. "This isn't a one-time shot".

"I see a lot of retailers doing really well, as evidenced in the stock market, restaurants, higher spending, wage increases, and that's all going to effect New Yorkers directly", he said.

This marks the fastest pace of growth for the USA economy in any quarter since the third quarter of 2014.

But economists are generally much less optimistic, especially about the long term.

Even with the relatively strong pace of growth last quarter, most economists expect expansion to settle back to near its long-run rate, and some have flagged the risk of a recession in two years.

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