U.S. Economy Grew 3% in 2nd Quarter, Fastest Pace in 2 Years
By NELSON D. SCHWARTZ
AUG. 30, 2017
There are several reasons that his goal is probably far-fetched, namely the country’s aging work force and slower population growth than in the past. Combine that with low productivity growth, and hitting Mr. Trump’s target begins to look like a Sisyphean challenge.
The president also suggested that other economies overseas were growing at two or three times the American rate. “You look at other countries and what their G.D.P. is, they are unhappy when it is 7, 8, and 9,” he said.
No major Western economy is growing close to that rate — and none has in years. The fastest-growing large economy, China’s, grew 6.7 percent last year.
Still, with personal consumption accounting for nearly 70 percent of economic output, the new willingness of shoppers to open their wallets is a good sign.
“The economy is stronger than you think,” said Chris Rupkey, the chief financial economist at Mitsubishi UFJ Financial Group in New York. “Bet on it.”
The improvement was driven in large part by strong consumer activity, with purchases of durable goods like automobiles and appliances rising strongly. Increased business spending also helped lift the latest estimate above Commerce Department’s initial reading of 2.6 percent for the quarter.
The surge in consumer spending stands in stark contrast with the problems plaguing brick-and-mortar stores like Sears and Macy’s, which have been forced to close dozens of locations this year amid fierce competition from online retailers like Amazon.com.
The government’s data reflects all purchases, whatever the retail channel, which explains why malls and street-level stores may be suffering even as consumers become more bullish and the broader economy powers ahead.
Real Economic Growth
Most economists are expecting the economy to expand at a rate of roughly 3 percent in the second half of 2017. That pace should be strong enough to keep job growth and wages on track for further gains, while keeping the threat of inflation modest for now.
Besides wild cards like Hurricane Harvey’s impact on a broad swath of the Gulf Coast, and political uncertainty about issues like tax overhaul and a possible increase in infrastructure spending, traders are also keeping an eye on the Federal Reserve.
Most experts believe the central bank will raise interest rates just once more this year, but a faster economy or an increase in wages or inflation could prompt policy makers to move more quickly to tighten monetary policy and shrink the Fed’s balance sheet in 2018.
Janet L. Yellen, the Fed chairwoman, and other policy makers will also be closely watching data expected on Friday morning from the Labor Department on hiring, wages and unemployment in August. Economists estimate that the economy added 180,000 jobs, but a stronger gain, like July’s 209,000 jump, or an uptick in wages, would focus more investor attention on the Fed’s next meeting on Sept. 19 and 20.
At a speech last week in Jackson Hole, Wyo., Ms. Yellen focused mostly on the continuing need for regulation, rather than the outlook for growth, but she did term the current economy “strong.”
On Wednesday, some economists offered improved expectations for job creation in August after the payroll processor ADP reported that private employers added 237,000 jobs, well above the 185,000 increase that had been expected.
The acceleration in spending suggests that a so-called Trump bump — improved sentiment among consumers and more optimism among business leaders — may be translating into concrete actions like homeowners buying new appliances and companies investing in new software or equipment.
“The consumer is in the driver’s seat in terms of economic growth,” said Scott Anderson, chief economist at Bank of the West in San Francisco. “It puts us on a stronger path going into the third quarter, although Hurricane Harvey introduces some uncertainty.”
Mr. Anderson expects growth in the range of 3 to 3.5 percent in the current quarter, but he said the hurricane could shave as much as 0.3 percentage points off that figure. A hit like that would mostly be reversed in the year’s final quarter as rebuilding efforts kicked in, he added.
It will take more than one quarter’s data for the White House or congressional Republicans to be able to claim credit for lifting the economy’s growth trajectory. Under President Barack Obama in 2013 and 2014, quarterly growth occasionally exceeded 3 percent. But, in contrast to what happened during recoveries in the 1990s and mid-2000s, annual growth never passed that threshold.
If the economy were to sustain the current pace of expansion, it would be a significant uptick from the 2 percent annual growth rate that has mostly.