Economy

Trump claims victory with GDP number as trade war looms

Trump claims victory with GDP number as trade war looms

"As the trade deals come in one-by-one, we're going to go a lot higher than these numbers, and these are great numbers", Trump said Friday at the White House. That number strips out volatile inventories data, trade, and government spending. U.S. Treasury yields fell and stocks on Wall Street were down. In case you don't know what that means, this is it: The economy, with all the estimates and guesstimates put into Friday's figure, actually grew by 1.025 percent in the second quarter.

Trump also repeated his claim that the US has a trade deficit with Canada, but that is true only in goods. Mr Trump has said he sees annual growth of three percent or more as sustainable. As Trump and President Clinton before him found out, voters really do care about the economy.

Paul Ashworth, chief U.S. economist at Capital Economics, said Friday, "Overall, helped by the massive fiscal stimulus, the economy enjoyed a strong first half of this year but, as the stimulus fades and monetary policy becomes progressively tighter, we expect GDP growth to slow markedly from mid-2019 onwards". He predicts about 2.5 percent growth for 2019 - a bit better than the 2 percent of recent years. "If economic growth continues at this pace the United States economy will double in size more than 10 years faster than it would have under either President Bush or President Obama".

Josh Bivens, director of research at the left-leaning Economic Policy Institute (EPI), wrote that the GDP data combined with the 2.2 percent figure from the first three months of the year point to a trajectory in line with growth that has been typical since the last recession.

Companies did expand their capital spending in the first quarter, but the biggest American companies spent far more on dividends and share buybacks, a sign that the cash they have on hand outstripped their investment opportunities.

That is the second quarter in a row the measure, known as core PCE, has hit or exceeded the Fed's 2% target, and is likely to keep the central bank on track with its plans to raise interest rates gradually.

First-quarter gross domestic income, adjusted for inflation, was revised to a 3.9 percent gain from a previously reported 3.6 percent.

That weakness is a potential red flag, said Lindsey Piegza, chief economist at Stifel. And that gave the overall export numbers a big lift.

Trump has also imposed tariffs on steel and aluminium imports, leading to retaliation by the US's main trade partners, including Canada, the EU, Mexico and China.

Earlier in the week he tweeted that the U.S. had "the best financial numbers on the planet".

The numbers were driven by consumers who began spending the tax cuts Trump signed into law previous year and exporters who have been rushing to get their products delivered ahead of retaliatory tariffs. Perversely, so did the threat of various trade rows.

President Trump thinks this is just the beginning.

This is the first time since the 2016 election that USA growth has hit the 4% target President Trump set himself during the campaign.

In the second quarter, economic growth hit its fastest pace of growth since the third quarter of 2014. But economists warn it's unlikely to last.


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