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US Q2 growth revised upwards to 4.2%

Many economists view the uptick as a blip, boosted by one-off factors unlikely to be sustainable


THE roaring growth recorded by the US economy in the second quarter was even faster than first reported, with new numbers showing a bigger boost in corporate spending, the government reported on Wednesday.

The uptick in estimates of second quarter spending by companies was sure to comfort President Donald Trump and supporters of December's sweeping corporate tax cuts who argue that lowering corporations' tax burdens will spur investment and growth.

Gross Domestic Product advanced at an annual rate of 4.2 per cent in the April-to-June period, a tenth of a point faster than initial estimates showed last month and still the fastest growth in almost four years, according to the Commerce Department.

Economists had been expecting a slight downward revision.

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Many economists view the second quarter growth as a blip, juiced by one-off factors unlikely to be sustainable, and estimates for growth in the third quarter now hover around a still-robust 3 per cent.

But Mr Trump last month hailed the economy's renewed vigour, claiming credit for boosting growth above all with tax cuts and by aggressively confronting trading partners.

Still, much of the second-quarter boom was due to a boost in exports as merchants raced to buy American goods - principally soybeans and petroleum - ahead of China's retaliatory tariffs that took effect in July. The pendulum is expected to swing in the other direction in coming months.

Corporate profits rose US$72.4 billion, up from US$26.7 billion in the first quarter when many companies reported one-time accounting charges due to changes in the tax laws.

Growth is trending higher in the world's largest economy this year, putting Mr Trump's annual growth target of 3 per cent within reach.

Much of the upward revision in spending by companies reflected investment in computer software, according to the department. Meanwhile, estimates for the value of imports, notably petroleum, fell and federal and local government spending moved up.

The new estimate was based on a more complete set of data than previously available and will be revised again next month.

US defence spending also rose 6 per cent for the quarter, the biggest increase in nine years, five tenths of a percentage point faster than previously estimated.

These gains offset what officials described as "widespread" downward revisions to consumer spending, with small subtractions from purchases of cars, furniture and gasoline, among other items.

Downward revisions in the housing sector, which has suffered declining sales and construction this year, also weighed on the outcome.

With budget deficits ballooning, the White House is betting on faster growth to help offset the cost of the tax cuts, which economists say is unlikely.

Even so, the pace of expansion is expected to cool from the second quarter as the tax-cut boost fades, a trade war threatens business demand and the Federal Reserve raises interest rates further.

Economists surveyed by Bloomberg project a 2.9 per cent expansion for the full year. Household purchases, which account for about 70 per cent of the economy, have been supported by a strong job market and lower taxes. In addition, a rise in gasoline costs earlier this year has eased, reducing a risk to spending.

The continuing acceleration in profit growth suggests corporate America is benefiting from strength in consumer and business demand. That, together with lower taxes, could bode well for further gains in investment this year.

Price data in the GDP report showed inflation was in line with the Fed's 2 per cent goal.

Excluding food and energy, the central bank's preferred price index that's tied to personal spending rose at a 2 per cent annualised rate, the same as in the initial report. AFP, BLOOMBERG

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