The U.S. economy grew at a brisk 3 percent pace in the April to June quarter, the Commerce Department said Wednesday — a report welcomed by President Trump, who has repeatedly vowed he can propel the country to faster growth.
"We just announced that we hit 3 percent in GDP. It just came out," Trump said Wednesday at a rally in Springfield, Missouri, taking credit for the GDP uptick. He then made a prediction: "I think we can go much higher than 3 percent."
This was the strongest quarterly growth for the United States in more than two years and was driven by U.S. families and businesses opening their wallets a little wider. Americans spent more money at stores and restaurants and on other services, and businesses invested more on equipment and research. While the private sector surged ahead, however, government spending shrank, especially at the state and local level.
The growth is “impressive given the lack of policy reforms out of Washington, D.C.," said Joseph Brusuelas, chief economist at RSM, a tax and consulting firm.
It's rare for the U.S. economy to be doing this well when a president's approval rating is below 40 percent, as Trump's has been this summer. Some credit President Barack Obama for handing off a solid economy to Trump; others point to the surge in business and consumer confidence after Trump was elected as an indication that the new president caused a shift in momentum.
The White House has promised that Trump can achieve 3 percent growth for the year, far higher than the 2 percent average under Obama. For Trump to achieve his goal in 2017, he will need the economy to accelerate at an even faster rate the rest of the year to make up for the sluggish 1.2 percent growth in the January-March quarter. Few economists think that will happen.
“We're still in the slow-lane economy,” said Stuart Hoffman, senior economic adviser at PNC Financial Services Group. “The 3 percent growth the president talked about is not in sight.”
Hoffman attends an annual gathering of leading economists and investors each August at Camp Kotok in Maine. For 2017, the Camp Kotok group predicts a 2.1 percent pace of growth. That's right in line with what Obama achieved during his tenure.
The Commerce Department originally estimated second-quarter growth at 2.6 percent, but it was revised up to a 3 percent pace Wednesday as more data came in. The most encouraging news was the strong spending by businesses. That has been lacking for much of the recovery but may finally be turning around. There will be one more revision to second-quarter GDP.
It is not unusual for the U.S. economy to see a “spring bounce,” where growth picks up sharply after the winter months as people head to the store or take expensive vacations. Under Obama, the economy sometimes grew as much as 4 percent or 5 percent in a single quarter. Trump's challenge is to make strong growth the norm, not a blip for a quarter or two.
Trump has yet to achieve a major legislative victory, although he has been aggressively rolling back regulations on businesses. He is speech in Missouri was an effort to rally support for tax reform this fall.
Still, the economy remains a bright spot for the president, who is suffering from low approval ratings and a barrage of criticism after his comments on the deadly white-nationalist rally in Charlottesville.
This week Trump visited Southeast Texas to survey the devastation from Hurricane Harvey, which has deluged Houston and surrounding areas with record amounts of rain, triggering historic flooding. Early estimates indicate that Harvey has caused $40 billion worth of damage to homes, roads and businesses. Emergency crews are still working to get everyone to safety.
While Houston, the United States' fourth-largest city, will take years to recover, the overall effect on the U.S. economy is expected to be modest.
“As is the case with most natural disasters, the impact on the U.S. economy will likely be both small and mixed as the early disruption to production and potential spikes in gas prices fade and are replaced by the positive impact of repair and reconstruction efforts,” said David Kelly, chief global strategist at JPMorgan Funds.