President Donald Trump on Friday hailed roaring US economic growth as a “miracle,” and said the quickest expansion in almost four years was a vindication of his economic agenda.
With the size of the American economy now surpassing $20 trillion, GDP expanded by 4.1 percent in the April-June quarter, making the United States the fastest-growing of advanced countries, according to a government report.
“We’re on track to hit the highest annual average growth rate in over 13 years,” Trump said in remarks at the White House. “Everywhere we look, we’re seeing the effects of the American economic miracle.”
The second quarter acceleration came in part after the injection of stimulus and Republican tax cuts.
But economists warned it could be a blip caused by temporary factors, including a one-off bounce produced by Trump’s trade confrontation with China.
The robust results put growth in the first half of the year at just over three percent, matching a White House target and faster than the trend in previous years.
Trump said the United States was “the economic envy of the world,” and “As the trade deals come in one by one, we are going to go a lot higher than these numbers and these are great numbers.”
His jubilation did not extend to Wall Street, where stocks closed down markedly as investors feared the economy has peaked and amid disappointing earnings and trade war fears.
In the April-June period, consumer spending had its biggest bounce in nearly four years, with Americans buying more cars and spending more liberally on health care, housing, utilities, restaurants and hotels, according to the Commerce Department report.
Purchases of goods jumped 5.9 percent — with the largest contribution coming from booming auto sales — while services rose 3.1 percent.
But the report got another boost from an unusual source: strong exports which leapt 13.3 percent, driven higher by foreign sales of oil and soybeans, which now face stiff Chinese tariffs.
Analysts said that increase was due to stockpiling by Chinese importers before Beijing’s retaliatory tariffs on US goods hit in July, which means trade is likely to fall off in the third quarter, dragging down the growth rate.
Accelerating in a trade war?
But Trump nevertheless focused on the sudden drop in the US trade deficit as another triumph for his tough trade policies.
“Perhaps one of the biggest wins in the report, it is indeed a big one, is that the trade deficit, very dear to my heart because we’ve been ripped off by the world, has dropped by more than $50 billion,” Trump said.
The report showed imports rose only 0.5 percent, the smallest increase in two and a half years.
Also contributing to economic growth, spending by state and local governments rose 1.4 percent.
The report fell short of the most bullish forecasts of five percent or higher, with which Trump had teased audiences at events in Iowa and Illinois as recently as Thursday.
The White House is counting on faster growth to pay for December’s sweeping tax cuts by generating higher revenues. But federal tax receipts are already plummeting, widening the federal budget deficit, just as the costs of borrowing increase due to mounting interest rates.
Ian Shepherdson of Pantheon Macroeconomics said swings in inventories and trade, as well as the fading effects from the income tax cuts could put third-quarter growth at three percent.
“The message, then, is that if you borrow enough money from your grandchildren and throw it at the economy, it will grow faster, for a while,” he wrote in a research note.
Diane Swonk, chief economist at Grant Thornton, said the growth rate was likely to meet the White House’s three percent target for the year and noted that a sudden drop in business inventories in the second quarter could point to a rebuild in the latter half of 2018.
“The question is, how much are firms willing to stock up with the threat of a trade war?” she said in a research note.
