US Q2 GDP growth revised up to 4.2%

[WASHINGTON] US economic growth was a bit stronger than initially thought in the second quarter, notching its best performance in nearly four years, as businesses boosted spending on software and imports declined.

Gross domestic product increased at a 4.2 per cent annualized rate, the Commerce Department said on Wednesday in its second estimate of GDP growth for the April-June quarter. That was slightly up from the 4.1 per cent pace of expansion it reported in July and was the fastest rate since the third quarter of 2014.

Businesses spent more on software than previously estimated in the second quarter and the nation also imported less petroleum. Stronger business spending and a smaller import bill offset a small downward revision to consumer spending.

Compared to the second quarter of 2017, the economy grew 2.9 per cent instead of the previously reported 2.8 per cent. Output expanded 3.2 per cent in the first half of 2018, rather than 3.1 per cent, putting the economy on track to hit the Trump administration's target of 3 per cent annual growth.

But the robust growth in the second quarter is unlikely to be sustained given the one-off drivers such as a US$1.5 trillion tax cut package, which provided a jolt to consumer spending after a lackluster first quarter, and a front-loading of soybean exports to China to beat retaliatory trade tariffs.

The government reported on Tuesday that the goods trade deficit jumped 6.3 per cent to US$72.2 billion in July as a 6.7 per cent plunge in food shipments weighed on exports.

While consumer spending has remained strong early in the third quarter, the housing market has weakened further with homebuilding rising less than expected in July and sales of new and previously owned homes declining.

The Trump administration's "America First" policies, which have led to an escalation of a trade war between the United States and China as well as tit-for-tat tariffs with the European Union, Canada and Mexico, pose a risk to the economy.

Economists had expected second-quarter GDP growth would be revised down to a 4.0 per cent pace. The economy grew at a 2.2 per cent rate in the January-March period.

An alternative measure of economic growth, gross domestic income (GDI), increased at a 1.8 per cent rate in the second quarter. That was a moderation from the first quarter's brisk 3.9 percent pace.

The average of GDP and GDI, also referred to as gross domestic output and considered a better measure of economic activity, increased at a 3.0 per cent rate in the April-June period. That followed a 3.1 per cent growth pace in the first quarter.

The income side of the growth ledger was held back by after-tax corporate profits, which grew at an 2.4 per cent rate last quarter, decelerating from the 8.2 per cent pace logged in the first quarter.

Growth in consumer spending, which accounts for more than two-thirds of US economic activity, was lowered to a 3.8 per cent rate in the second quarter instead of the previously reported 4.0 per cent pace. Consumer spending increased at a 0.5 per cent pace in the first quarter.

REUTERS