Why Economic Growth Might Be Weaker Than It Looks

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The Commerce Department just announced that the economy grew at a 4.1% GDP Growth rate in the second quarter of this year.

Net exports unexpectedly added 1.06 percentage point to the second quarter economic growth as USA businesses largely increased exports of foods, feeds and beverages ahead of retaliatory tariffs on US products, analysts said.

In fact, the skepticism from economists has centred more on whether strong GDP growth would be sustainable after a few quarters. And, ironically, Trump's various protectionist measures spurred a boom for USA exporters - because foreign buyers were eager to stock up on American goods before their governments slapped retaliatory tariffs on such products.

"We expect that fiscal stimulus will continue to prevail over tariffs and oil prices this year, potentially boosting U.S. economic growth to its highest point of the cycle", LPL Financial chief investment strategist John Lynch said. Average hourly pay, before adjusting for inflation, is rising at about a 2.5 percent annual rate, below the 4 percent level reached in the late 1990s when the unemployment rate was as low as it is now.

Trump said the pace of growth was "very sustainable" and could create as many as 12 million jobs over the next decade.

And Fuest says New Yorkers are already feeling the impact. For the market to get back to 130 percent, it would require a much more robust pace of growth.

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At the same time, the uncertainty over trade policy may spur some companies to slow investment, resulting in a hit to economic growth in the second half or later.

GDP's overall growth of 4.1% in the second quarter was almost twice the rate of 2.2% and 2.1%, respectively, in the two preceding quarters. Residential investment declined for the second straight quarter, by 1.1% in the second quarter, versus 3.4% in the preceding quarter; those declines were givebacks from the 11.1% jump in the last quarter of 2017, however. When services are included, such as insurance, tourism, and engineering, the USA had a $2.8 billion surplus with Canada past year.

But just as Trump did before the government's May jobs report was released in early June, he chose to brag before Friday morning's release of the government's estimate of how fast the economy grew during the April-June quarter. Most significantly, China appears to have accelerated purchases of soybeans, crude oil, and other exports before new tariffs went into effect. But today's economic data is certainly good, and the president can take some of the credit. That's because, ahead of retaliatory tariffs by China on USA agricultural products, China went on a soybean buying spree. He campaigned on a platform of tax cuts for businesses and individuals, as well as deregulation.

"That's a tremendous drop", the president said.

There are worries that America's numerous trade spats are now hitting economic growth. The economy expanded 2.9 per cent in 2015, though it slowed the following year. "Undoubtedly we're going to hear the familiar chant about how this is Obama's economy".

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