KABOOM! U.S. Economy Explodes With 4.1% Growth Rate

The U.S. economy exploded in the second quarter of 2018, with the gross domestic product (GDP) climbing 4.1% — nearly doubling the first quarter, which was revised up to 2.2%.

The booming rate is the highest since the third quarter of 2014 and just the third-highest since the Great Recession began in 2008. The running four-quarter average is 3.1%, considered by economists to be a very strong number.

In Q2 of 2018, consumer spending grew 4%, while nonresidential business investment jumped 7.3%, both also considered strong numbers.

Trump took a victory lap on the White House's South Lawn, telling reporters that the high numbers are "sustainable."

"We're going to go a lot higher," Trump said. "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. ...

“We’ve accomplished an economic turnaround of historic proportions,” Trump said. “Once again, we are the economic envy of the entire world.”

Wrote CNBC:

Exports rose in part as farmers rushed to get soybeans to China ahead of expected retaliatory tariffs to take effect in the coming days. Declines in private inventory investment and residential fixed investment were the main drags, the report said.

The tariffs as well as last year's massive tax cut both were key factors in the growth.

"Bottom line, if it wasn't for a big upside to inflation, GDP would have been much better because of the upside in spending, boost in exports and government spending which offset an unexpected sharp decline in inventories and no change in gross private investment," said Peter Boockvar, chief investment officer at Bleakley Advisory Group.

Trump has been touting the numbers all week. In Granite City, Illinois, on Thursday, he told a cheering crowd of steel workers: "Great things have happened. So whatever those numbers are, watch for them. Somebody predicted today 5.3. I don't think that's going to happen. 5.3. If it has the 4 in front of it, we're happy."

"These are unthinkable numbers," he added.

Some economists credit Trump's tax cuts with the high GDP growth. Both companies and consumers have been spending again as unemployment plunged to an 18-year low and the housing market boomed.

"When you drop taxes and increase spending, even if some of it is saved rather than spent, it boosts growth," Jim O'Sullivan, chief economist at High Frequency Economics, told CNBC. "Ultimately, that boost won't last forever, and of course you've added to the government debt. But there's no question that it's stimulative."

The tax cuts greatly reduced business tax rates, giving businesses immediate relief — and extra spending cash. Thousands raised employees' wages, while others used the cash infusion to expand.

Still, a single quarter of growth doesn't reveal much, and summer is often the highest of the year. The economy grew 2.3% in 2017, but a full year of GDP growth hasn't topped 3% in 14 years.

What's Your Reaction?