U.S. Economy Grew At 4.1% Rate in Second Quarter
By Harriet Torry and Sharon Nunn
July 27, 2018 8:35 a.m. ET
GDP, annualized quarterly change
Source: Commerce Department
Note: Adjusted for inflation and seasonality
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Q2 (1st reading): 4.1%Estimate: 4.4%
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WASHINGTON—The U.S. economy grew at the strongest pace in nearly four years during the second quarter, powered by a rebound in consumer spending, exports and firm business investment.
Gross domestic product—the value of all goods and services produced across the economy—rose at a seasonally and inflation-adjusted annual rate of 4.1% from April through June, the Commerce Department said Friday. That was a pickup from the first quarter’s revised growth rate of 2.2%.
Economists surveyed by The Wall Street Journal expected a 4.4% growth rate. The second-quarter growth reading was the strongest since the 4.9% annual rate reported for the third quarter of 2014.
Compared with the second quarter a year ago, output grew 2.8%.
The robust report makes it highly likely the Federal Reserve will continue gradually raising short-term interest rates to prevent the economy from overheating. Central bank officials have raised rates twice this year, and penciled in two further increases this year and three in 2019.
The Fed is widely expected to leave its benchmark rate unchanged at its policy meeting next week and then increase it in September by a quarter-percentage-point to a range between 2% and 2.25%.
Trade played a large role in the second quarter’s bumper growth. Net exports added 1.06 percentage point to the quarter’s 4.1% GDP growth rate, as exports rose strongly.
Earlier this month, the Commerce Department said U.S. soybean exports surged in the second quarter, delivering an outsize boon to economic growth even as China shifted much of its sourcing to Brazil in response to its worsening trade relations with the U.S. The export rally likely reflected efforts by buyers to get their soybeans before China’s 25% retaliatory tariffs on U.S. soybeans, which hit in July.
Inventories subtracted 1.00 percentage point from the quarter’s GDP growth rate. Both trade and inventories tend to be volatile categories.
A machine operator at the Mid Continent Nail Corp. looks at a set of nails that fit into a nail gun at the company’s factory in Poplar Bluff, Mo., in June.
A machine operator at the Mid Continent Nail Corp. looks at a set of nails that fit into a nail gun at the company’s factory in Poplar Bluff, Mo., in June. Photo: bill greenblatt/Agence France-Presse/Getty Images
Strong consumer spending helped boost growth alongside trade. A low unemployment rate, steady job and wage growth and the late-2017 tax overhaul may have encouraged spending by consumers and businesses in the second quarter. Consumer spending, business investment and government spending all rose.
Consumer spending accounts for more than two-thirds of total economic output. Friday’s report said personal-consumption expenditures rose at a 4.0% annual rate in the second quarter, the strongest rate of growth since the fourth quarter of 2014. Spending on durable goods alone contributed 0.64 percentage point to the second-quarter rate, the Commerce Department said. As Americans spent more, they saved less. The personal saving rate was 6.8% in the second quarter, down from 7.2% in the first.
A key measure of business spending moderated from the first quarter but remained strong. Nonresidential fixed investment—reflecting spending on commercial construction, equipment and intellectual property products like software—rose at a 7.3% rate after rising 11.5% in the first quarter.
Final sales, which measure the strength of demand for U.S. goods and services by excluding unsold goods that end up adding to business inventories, rose a strong 5.1% in the second quarter, compared with 1.9% in the first.
The housing sector, however, was lackluster for the second quarter in a row. Residential fixed investment fell at a 1.1% rate in the second quarter. That could reflect higher mortgage rates, low housing inventory and tax-code changes that diminished decades-old perks that encouraged homeownership.
Government expenditures were up at a 2.1% annual rate in the second quarter.
The $1.5 trillion tax cut passed by Congress late last year was part of President Donald Trump’s plan to boost economic growth to the above-3% annual growth rate that marked the robust expansions of the 20th century. Economic forecasters largely agreed the legislation would boost growth in the near term, but were split over whether the legislation would sustainably increase the economy’s growth rate in the face of demographic and other structural headwinds.
The current expansion, which began in mid-2009, became the second longest on record in July, trailing only the 10-year expansion that ended in early 2001.
Growth has been lackluster during the current expansion: from the second quarter of 2009 to the end of last year, GDP increased at an average annual rate of 2.2%, below the 2.9% rate during the 2001-2007 expansion and the 3.6% rate from early 1991-2001.
Friday’s report was accompanied by revisions to economic-output statistics going back to 1929, including new methodology the Commerce Department said would address seasonal adjustment problems that have tended to leave the first quarter looking weaker than other quarters. Other revisions include incorporating newly available and more comprehensive data sources.
Friday’s report showed the economy boomed in the second quarter of 2018, although many economists and policy makers believe the pace is unlikely to be sustained in the long run, given the aging of the population and slow productivity growth of recent years.
Economists surveyed by the Journal earlier this month expected the pace of growth would cool in the third quarter to 3%; and to 2.9% in the fourth. The median projection submitted by Fed officials in June projected the economy would expand 2.8% in the fourth quarter of 2018 from a year earlier, and ease to 1.8% annual pace in the long run.
Write to Harriet Torry at
harriet.torry@wsj.com and Sharon Nunn at
sharon.nunn@wsj.com