Consumer spending, which accounts for 70 per cent of economic activity, rose to a 4 per cent annual growth rate after turning in a lacklustre 0.5 per cent gain in the first quarter.
With the size of the American economy now surpassing US$20 trillion, GDP expanded by 4.1 per cent in the April-June quarter, making the United States the fastest-growing of advanced countries, according to a government report. That would be strongest performance since the third quarter of 2014 and put the economy on track to achieve the Trump administration's target of 3 percent annual growth.
Speaking at events Thursday in Iowa and Illinois, Trump claimed victory in advance of Friday's government release of quarterly gross domestic product data, saying "nobody thought we were going to be this great" and that when he became president, "those numbers were bad". "It's going to get better, it's totally sustainable, I look forward to next quarter", said the President. Daniel Silver, an economist at JPMorgan Chase, forecast that soybean exports alone likely boosted GDP by 0.5 percentage point in the second quarter. He said somebody had predicted 5.3% growth, which he didn't think would happen, but he'd be happy with anything over around 3.7%. That was almost double the first quarter rate of 2.2 percent and the strongest pace in almost four years. The sweeping Republican tax cuts that took effect in January were likely a major contributing factor, permanently slashing the corporate tax rate from 35 percent to 21 percent and increasing many workers' take-home pay.
Exports of US soybeans soared as companies sought to ship them to China before that country slapped tariffs on them in retaliation for USA tariffs on Chinese goods.
But Trump did not urge caution on that front, instead pointing to a decrease in the United States trade deficit driven by those exports, calling it "one of the biggest wins" in the economic report. But that's illusory. Exports surged in the second quarter as soybean producers and others anxious about trade wars raced to get goods out of the country before tariffs were likely to go into effect.
"Consumer spending bounced back and resumed its status as lead driver", wrote TD Economics' Admir Kolaj, with a 7.3 per cent lift in non-residential investment and net exports also providing a helping hand. The result was boosted by a budget deal at the beginning of this year that added billions to defense and domestic spending.
The personal consumption expenditures price index, a key metric that the Federal Reserve uses to decide whether to raise interest rates, came in at 1.8%, down from 2.5% in the first quarter. At 8:30 a.m. Eastern time that day, the Bureau of Labor Statistics announced that 223,000 jobs had been added in May, surpassing expectations, and that the unemployment rate had fallen to 3.8 per cent.
Forecasters expect healthy consumer spending in the second half of this year but a slower pace than in the spring.
Knowing that a great GDP report was coming, the Washington Post - an anti-Trump broadsheet with a sports page and comic strips - preemptively tried to explain it away as "a blip". The GDP revisions didn't change that narrative. Growth has averaged just 2.2 percent since mid-2009 through the end of previous year, the same as previously reported.