The roaring growth of the US economy in the second quarter was even faster than first reported, with new numbers showing a bigger boost in corporate spending, the government reported Wednesday.
The uptick in business spending in the April-June quarter was sure to comfort President Donald Trump and supporters of December’s sweeping corporate tax cuts, who argue that lowering tax burdens will spur investment and growth.
Gross Domestic Product advanced at an annual rate of 4.2 percent in the second quarter, a tenth of a point faster than initial estimates last month and the fastest growth in almost four years, according to the Commerce Department.
The rate also was nearly twice the pace of first quarter growth, surprising analysts who had been expecting a slight downward revision.
Many economists view the second quarter growth as a blip, juiced by one-off factors unlikely to be sustainable. Estimates for growth in the third quarter now hover around a still-robust three percent, putting Trump’s annual growth target of three percent within reach for this year at least.
Economists also warn there are signs momentum slowed at the end of the third quarter, with Trump’s tariff battles cutting into exports.
The effects of the tax cuts and recent stimulus are expected to begin to wane soon, while rising interest rates and the US-China trade battle loom as economic headwinds.
But Trump last month hailed the economy’s renewed vigor, claiming credit for boosting growth with tax cuts and by aggressively confronting trading partners.
‘With profit margins expanding again and investment spending accelerating, the outlook for the second half of the year is a solid one but accompanied by rising inflation pressures,’ RDQ Economics said in an analytical note.
Much of the second-quarter boom was due to a boost in exports as merchants raced to buy American goods – principally soybeans and petroleum – ahead of China’s retaliatory tariffs, which took effect in July. The pendulum is expected to swing in the other direction in coming months.
Softer consumer spending
Corporate profits rose $72.4 billion, up from $26.7 billion in the first quarter when many companies reported one-time accounting charges due to changes in the tax laws.
Much of the upward revision in spending by companies reflected investment in computer software, according to the department. Meanwhile, estimates for the value of imports, notably petroleum, fell and federal and local government spending moved up.
US defense spending also rose six percent for the quarter, the biggest increase in nine years, five tenths of a percentage point faster than previously estimated.
These gains offset what officials described as ‘widespread’ downward revisions to consumer spending, with small subtractions from purchases of cars, furniture and gasoline, among other items.
Downward revisions in the housing sector, which has suffered declining sales and construction this year, also weighed on the outcome.
The new estimate was based on a more complete set of data than previously available and will be revised again next month.
With budget deficits ballooning, the White House is betting on faster growth to help offset the cost of the tax cuts, which economists say is unlikely.
Already in record territory, Wall Street again closed higher on Wednesday as the S&P 500 and Nasdaq set new records. Investors appeared less moved by the rosy economic figures than by mounting optimism in trade talks between United States, Canada and Mexico, however.