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Q2 growth at its fastest pace in nearly four years

Economy on track to hit Trump administration's goal of 3% annual growth

Growth in the second quarter was driven by the Trump administration's US$1.5 trillion tax-cut package which boosted consumer spending after it almost stalled early in the year.


US economic growth accelerated in the second quarter at its fastest pace in nearly four years as previously estimated, putting the economy on track to hit the Trump administration's goal of 3 per cent annual growth.

Gross domestic product increased at a 4.2 per cent annualised rate, the Commerce Department said on Thursday in its third estimate of GDP growth for the April-June quarter. That was the fastest pace since the third quarter of 2014 and unchanged from the estimate published in August.

The economy grew at a 2.2 per cent pace in the January-March period. Upward revisions to spending on residential structures and on nondurable goods like petrol was offset by a downgrade to inventory investment.

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The economy expanded 3.2 per cent in the first half of 2018.

Growth in the second quarter was driven by the Trump administration's US$1.5 trillion tax-cut package which boosted consumer spending after it almost stalled early in the year.

Household purchases, which account for about 70 per cent of the economy, remained the main driver of growth. They contributed 2.57 point, up from a previously estimated 2.55 point.

A robust job market is helping consumers while strong profits are supporting corporate America. The steady growth rate will offer the White House further opportunity to claim credit for the robust expansion.

At the same time, a trade war with China has triggered higher tariffs on imports, supply-chain disruptions, and uncertainty about when the trade tensions may be resolved.

Borrowing costs will continue to tick up; the Federal Reserve, which lifted interest rates on Wednesday, said growth and job gains have recently been "strong" as it projected further rate hikes over the next year.

Economists had expected that second-quarter GDP growth would be unrevised at a 4.2 per cent pace.

Another set of data showed new orders for key US-made capital goods fell in August after four straight months of strong gains, while shipments barely rose, but that will probably not change expectations of solid growth in business spending on equipment in the third quarter.

The Commerce Department said on Thursday that orders for non-defence capital goods excluding aircraft, a closely watched proxy for business spending plans, dropped 0.5 per cent last month, pulled down by a decline in demand for computers and electronic products.

There was also a decrease in motor vehicle orders. Data for July was revised slightly lower to show the so-called core capital goods orders increasing 1.5 per cent instead of the previously reported 1.6 per cent surge.

Economists polled by Reuters had forecast core capital goods orders rising 0.4 per cent last month. Core capital goods orders increased 7.4 per cent on a year-on-year basis.

Shipments of core capital goods edged up 0.1 per cent last month after an upwardly revised 1.1 per cent gain in July. Core capital goods shipments are used to calculate equipment spending in the government's gross domestic product measurement. They were previously reported to have increased one per cent in July.

With business confidence at multi-year highs, in part buoyed by a US$1.5 trillion tax-cut package, August's surprise drop in core capital goods orders is likely to be temporary. There are, however, fears that an escalating trade war between the United States and China could hurt confidence and undercut both consumer and business spending. REUTERS, BLOOMBERG