The rate is the fastest since the second quarter of 2014, but analysts warn trade tensions could weigh down growth in the near future.
U.S. gross domestic product — the broadest measure of a nation’s overall economic health — grew at an annual rate of 4.1 percent in the second quarter of 2018, the fastest pace since the second quarter of 2014, according to the advance estimate from the Department of Commerce.
In addition, Commerce upgraded its first-quarter growth rate from 2 percent to 2.2 percent.
U.S. GDP grew 2.3 percent in 2017 compared with a 1.5 percent growth rate in 2016 and a 2.9 percent increase in 2015.
GDP is a calculation of the value of the goods and services produced by a nation’s economy minus the value of the goods and services used up in production.
Commerce’s Bureau of Economic Analysis (BEA) said the acceleration in GDP growth in the second quarter reflected larger increases in exports, personal consumption expenditures and state, local and federal government spending, as well as a smaller decrease in residential fixed investment. Those factors were offset in part by a decline in private inventory investment and a deceleration in nonresidential fixed investment and imports, which are a subtraction in the calculation of GDP.
Real exports of goods and services jumped 9.3 percent in the second quarter, according to BEA, compared with a 3.6 percent increase in the first quarter. Imports, meanwhile, grew just 0.5 percent, compared with a 3 percent increase the previous quarter and an 11.8 percent jump in the fourth quarter of 2017.
This is welcome news for the U.S. economy, but it’s important to put these kinds of data points into perspective.
Although the Trump administration’s recent imposition of additional import tariffs on steel, aluminum and roughly $50 billion in goods from China may have had a positive effect on GDP growth, this could be short-lived. Those increased duty rates certainly seem to have had an adverse impact on import growth, but the vast majority of the growth in exports came prior to the imposition of reciprocal tariffs on a wide range of U.S. products by the European Union, Canada, Mexico and China in late June and early July.
Analysts have pointed out that the growth in exports was primarily a result of foreign buyers stocking up on U.S.-made goods in order to avoid paying the higher tariff rates, and some have warned that growth will slow in the third quarter and the following two years.
“It’s ironic. The majority of economists think trade tensions are a drag on growth, but they’re going [to] juice GDP in the second quarter,” Neal Dutta, head of U.S. economics for Renaissance Macro Research, told The Washington Post. “Those effects are temporary.” Even after eliminating trade-related effects, however, “you’ll still get a number that’s around 3 percent, which is quite healthy,” Dutta said.
Ian Sheperdson, chief economist at Pantheon Macroeconomics, said the impact of recent federal tax cuts on consumer spending and an increase in foreign trade helped boost growth in the short-term, but that these effects won’t last.
“The tax cut money flowed in the early part of the year, people sat on it for a while and now they’ve spent it, and they won’t be spending it again,” he said in his analysis of the Q2 GDP figures.
Business spending was strong, Sheperdson said, but was actually slowing compared with the same time last year.
“I can see no evidence that business capex (capital expenditure) has picked up since the tax cuts and neither have forward looking indicators of future business capex, like survey measures from the ISM (Institute for Supply Management) and the National Federation of Independent Business,” he said. “Their capex intentions number is lower than it was at the peak last summer, well before the tax cuts.”
He further noted that although government spending has increased, it’s been reliant on borrowed money and has largely gone towards goods and services, as opposed to infrastructure.
“This is not good government spending, it’s bad and inefficient government spending,” said Sheperdson.
With regard to international trade, Sheperdson said the “enormous” amount of soybeans shipped from the U.S. to China in advance of the tariffs alone added 0.6 percentage points to GDP growth, but that this trend will reverse in the third quarter.
“What we’re probably looking at here is a one-quarter spike,” he said. “We had several of those under the Obama administration. None of those were extended into a stronger trend either, and this one won’t be any different.”
Economists with the Federal Reserve have forecast U.S. GDP to increase at a 2.8 percent rate for all of 2018 before slowing to a 2.4 percent rate in 2019 and 2 percent in 2020.
Adding to the encouraging news, the most recent data from Commerce indicates new orders for durable goods ticked up 1 percent to $251.9 billion in June after two straight monthly declines. The June increase in durable goods followed revised decreases of 0.3 percent in May and 1 percent in April.
Commerce’s Census Bureau noted that orders for transportation equipment, also up following two consecutive monthly decreases, drove the increase in overall durable goods orders, climbing 2.2 percent to $87.7 billion for the month. Excluding orders for transportation equipment, total durable goods orders were up 0.4 percent.
Shipments of manufactured durable goods rebounded in June after falling for the first time in 10 months in May, rising 1.7 percent to $251.6 billion, according to Census.
U.S. GDP surges 4.1 percent in Q2
