Donald Trump’s economic boom is rolling on, figures for gross domestic product (GDP) showed today.
America’s economy, the world’s largest, grew by an annual 4.2% in the second quarter of this year, 0.1% higher than the previous estimate and nearly double the yearly rate compared to the first quarter.
The Department of Commerce’s US GDP analysis said the rise was helped by increased personal consumption, a lower than expected decrease in residential fixed investment, higher levels of exports, and increased spending by federal, state and local governments.
Glowing report from the IMF
All this was partly offset by negative contributions from lower private inventory investment and a deceleration in non-residential fixed investment.
In contrast to an earlier estimate, second-quarter Gross Domestic Product (GDP) growth was helped by a decrease in imports, given that imports are deducted from GDP figures.
In an advance estimate on July 27, the department’s Bureau of Economic Analysis put second-quarter growth at an annual rate of 4.1%, well ahead of the 2.2% annual rate seen in the first quarter.
But it said this estimate “is based on source data that are incomplete or subject to further revision”.
In July, the International Monetary Fund (IMF) published its annual Article IV economic health check for America – such check-ups are common for most economies. It said:
It added: “The balance of evidence suggests that the US economy is beyond full employment.”
This last remark may have sounded warning bells in the White House, given President Trump’s opposition to further interest-rate rises by the Federal Reserve, the country’s central bank. Earlier this month, he said he was “not thrilled” by the Fed’s policy of gradually returning monetary policy to normal after the emergency stimulus measures adopted during and after the Great Recession.
Jobs and inflation above target
In December 2008, the key federal funds rate was slashed to an all-time low range of 0%-0.25%. Starting in December 2015, this has been gradually raised and now stands at a range of 1.75%-2%, as of the June meeting of the federal open market committee, the body that sets interest rates.
However, President Trump has suggested this underminined his efforts to stop China and others offsetting US tariffs by allowing their currencies to weaken, making their goods more attractive when priced in currencies such as the dollar.
But with the IMF claiming the US job market could be boiling over, putting upward pressure on wages, the Fed may continue to raise borrowing costs. It is charged with achieving a 2% annual inflation target and “maximum employment”, which is not specified but is thought to be defined by the Fed as an unemployment rate of 4.5% of the workforce.
In July, the Fed’s inflation measure, which excludes fuel and food costs because they can be volatile, was 2.4% and the unemployment rate was 3.9%.