The US economy grew at its fastest pace in more than two years in the second quarter, hitting President Donald Trump’s goal for the first time since he took office, according to data released Wednesday.
Higher consumer spending and business investment prompted a sharp upward revision in gross domestic product (GDP) which increased three percent in the April-June period, the Commerce Department said in its updated report.
The rate surpassed analyst expectations, which called for an increase of 2.7 percent. But growth in the first half of the year was just 2.1 percent, still below the 2.2 percent average recorded over the last three years.
Analysts said the data — with an unusually large upward revision of four tenths from the GDP estimate published last month — show an economy on a sturdy footing, enough to keep unemployment at the current low trend.
But they do not expect it to be sustained at this level, and they warned that the drag on growth from Hurricane Harvey is likely to be substantial given the extent of the damage wrought by rains and flooding.
The Trump administration has pledged to return the world’s largest economy to sustained annual growth of three percent or more by slashing taxes and regulations while boosting trade.
Economists have said this may be unrealistic in the best of times, and Trump’s growth agenda remains stalled in Congress.
Trump has alienated members of his own party, who face bruising battles in Congress next month over borrowing authority, the budget and reconstruction aid for areas battered by Hurricane Harvey.
A three-percent economy?
Trump hailed the GDP report during an appearance in Springfield, Missouri, as he pushed for his tax reform plan, saying “we’re really on our way”.
“If we achieve sustained three percent growth, that means 12 million new jobs and $10 trillion of new economic activity over the next decade,” he said. “That’s some numbers. And I happen to be one that thinks we can go much higher than three percent.”
This second GDP estimate for the April-June period, which remains subject to further revision, reflected higher sales of durable goods, such as autos — a sector that has struggled in the first half of the year after a record 2016.
The new figures also showed higher business spending on intellectual property products like computer software.
But analysts said with the first quarter of the year running a sluggish 1.2 percent growth, they already were expecting a stronger second quarter, meaning the gain in pace could derive more from statistics than reality.
Mickey Levy of Berenberg Capital Markets said the three percent figure “should not be taken at face value”.
“The US is not a three percent economy — some of it is due to a rebound from the quirky first quarter GDP estimate,” he wrote in a research note.
The faster growth rate could relieve the pressure on the Federal Reserve which has been divided over the course of monetary policy in recent months.
The central bank has raised interest rates twice this year but some market players doubt the Fed will hike a third time by December in light of persistently weak inflation.
The Fed has written off the low price pressures as merely “idiosyncratic” or “transitory” blips on the radar and the stronger second quarter could lend weight to this view.
