The Economy

GDP Growth Revised Upward to 3% for Q2

The economy grew at the fastest pace in more than two years but economists don't expect full-year growth to meet President Trump's 3% target.
Matthew HellerAugust 30, 2017

U.S. economic growth in the second quarter was stronger than originally reported, reaching President Donald Trump’s target amid robust consumer spending and business investment.

In its second of three estimates, the Commerce Department said Wednesday that gross domestic product rose at a 3% annual rate in the April-June period, an upward revision from the 2.6% reported last month and the strongest growth since the first quarter of 2015.

GDP grew 1.2% in the January-March period. Economists had expected that second-quarter GDP growth would be raised to a 2.7% rate.

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President Trump has set a 3% target for long-term economic growth. The economy grew 2.1% in the first half of 2017 but economists said it was unlikely growth this year would meet Trump’s goal.

“Underlying domestic demand in the economy is consistent with near three percent growth but the supply-side of the economy is not capable of delivering such a pace of growth at this point,” John Ryding, chief economist at RDQ Economics in New York, told CNBC.

Consumer spending powered the second-quarter surge, rising a revised 3.3% compared to the government’s original estimate of a 1.9% gain. Americans spent more on goods and services, including car purchases, housing, utilities, prescription drugs, and cellphone services.

Outlays of business investment rose at a revised 0.6% clip in the second quarter, up from a prior 0.4% estimate.

But inflation remained weak in the second quarter, with the Federal Reserve’s preferred measure, the personal consumption expenditures price index excluding food and energy, increasing at a 0.9% rate as previously reported. The Fed has set a 2.% target.

“Soft inflation is raising questions over whether the Fed will go ahead with another interest-rate hike this year,” MarketWatch noted.

The saving rate also slipped to 3.7% from 3.9% in the first quarter. “Households cannot, however, continue to rely on savings indefinitely to fund their consumption,” CNBC said. “This raises doubts on the sustainability of the robust pace of consumer spending.”

Economists say the most recent data suggest GDP is on track to maintain a 3%-plus growth rate in the third quarter.

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