US economy grows at brisk 4.2% in second quarter

WASHINGTON  – The US economy grew at a strong 4.2 percent annual rate in the April-June quarter, the best showing in nearly four years, as growth stayed on track to produce its strongest full-year gain in more than a decade. Strength in business investment offset slightly slower consumer spending.

The Commerce Department on Wednesday revised up its growth estimate for last quarter from an initial estimate of a 4.1 percent annual rate. The second quarter marked a sharp improvement from a 2.2 percent gain in the January-March period, though some of the strength last quarter came from temporary factors, including a surge in US exports before tariffs were to take effect.

Economists expect growth to slow to a still solid three percent annual rate the rest of the year, resulting in full-year growth of three percent for 2018. It would be the best performance since 2005, two years before the Great Recession began.

The 4.2 percent annual growth that the government estimated for last quarter is the strongest such figure since a 4.3 percent annual gain in the third quarter of 2014. The expectation of three percent growth for 2018 as a whole would be up from gains of 1.6 percent in 2016 and 2.2 percent last year.

Since the recovery began in mid-2009, growth has been sub-par, with annual gains averaging just 2.2 percent, making it the weakest recovery in the post-war period.

President Donald Trump often pointed to that fact during the 2016 presidential campaign to attack the economic record of the Obama administration. He has touted the pickup in growth, as measured by the gross domestic product, as evidence that his economic program of tax cuts, deregulation and tougher enforcement of trade agreements is working. Last month, Trump proclaimed that the GDP figure showed that the United States was now the “economy envy of the world.”

While forecasting solid growth of around three percent this year, economists contend that this performance is being pumped up for now by the $1.5 trillion tax cut Trump pushed through Congress last year, along with increased government spending. Many analysts say they think that those factors will begin to fade starting next year and that by 2020, growth may even slow enough to edge the economy close to a possible recession.

Gus Faucher, chief economist at PNC, said he foresees GDP growth this year of 3.4 percent, which he thinks will slow to 2.4 percent in 2019 and 1.6 percent in 2020 “as the fiscal stimulus from tax cuts and spending fades.”

Faucher said he thinks that continued interest rate hikes by the Federal Reserve will also act to slow growth. Trump has recently criticized the Fed, saying he is “unhappy” with its rate hikes, arguing that they pose a threat to the faster growth he is trying to fuel with his economic policies.

Some economists said Wednesday’s upward revision to GDP would give the Fed, which has already raised rates twice this year, leeway to do so twice more before year’s end, as it has signaled it expects to do.