Trump Tax Cuts Push US Economy to Its Fastest GDP Growth Spurt Since 2014

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Consumer spending drove the US economy to a second-quarter gross domestic product (GDP) growth rate of 4.1 percent, the fastest in four years, based on preliminary data released by the Department of Commerce on Friday.

The news was a huge milestone for President Trump, who pushed through $1.5 trillion in tax cuts at the beginning of 2018, promising that economic growth would pay for the cuts.

On Thursday, Trump broke with a tradition of presidents avoiding to issue any remarks on market sensitive government releases, telling an Illinois crowd: “Somebody actually predicted today 5.3. I don’t think that’s going to happen … if it has a four in front of it, we’re happy.”

GDP refers to the total value of all products and services that are produced domestically. Economists had predicted a growth rate of 4.4 percent, according to figures compiled by FactSet. Output jumped 2.8 percent from the second quarter of the previous year.

Firm business investment and exports also played a key role in the remarkable second quarter economic growth rate. The economy last expanded at a comparable rate in 2014, when gross domestic product jumped 5.2% in the third quarter.

However, economists warn the growth may not be sustainable, saying that only the wealthiest Americans have benefited from the mini-boom.

Based on the remarkable report, the Fed is highly likely to continue raising its short-term interest rates gradually in order to prevent the economy from backsliding.

The Central bank has raised rates twice since the beginning of the year. It plans to implement two more before the year comes to a close, and three in 2019.

The Federal Reserve is not likely to make any changes to its benchmark during its meeting next week. However, it is expected to raise the rates in September by 2% to 2.25%, according to article to CNBC.

The GDP report coincided with 2018 second-quarter earnings season as some of the biggest companies continue to announce their financial results.

Facebook and Amazon reported stronger-than-expected earnings on Wednesday and Thursday, respectively. Facebook stock plunged more than 18 percent, but Amazon shares jumped more than 4 percent.

Twitter shares plunged more than 11 percent in pre-market trading on Friday, after the social media company revealed quarterly earnings that matched the Wall Street expectations.

The San Francisco, California-based firm said it expects the number of monthly active users to decrease in the current quarter, pushing the stock down.

The Commerce Department had earlier said that the volume of soybeans exported from the US had grown rapidly in the second quarter, in spite of China’s decision to outsource most of the crop from Brazil in retaliation to its trade war with America.

Overall, the report is incredibly strong. Consumer spending jumped 4%, non-residential investment rose 7.3% and government spending added 2.1%. Imports hardly changed, while exports climbed 9.3% meaning trade accounted for 1.1% points of the overall growth rate.

Sources

https://www.cnbc.com/2018/07/26/trump-hints-at-us-second-quarter-gdp-number.html

https://www.bloomberg.com/news/articles/2018-07-26/asia-stocks-face-mixed-start-japan-bonds-in-focus-markets-wrap

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