It’s not the scorching 5.0 percent or more that we envisioned in our fondest dreams. It’s not the 4.5 percent that might have prompted us to throw a party. But 4.1 percent growth is well more than solid. It’s the sort of pace that would lead us to exceptional prosperity if it could be sustained over the long term.
Can it? That’s the key question, but the journey of a thousand miles begins with a first step, and we took it in the second quarter.
The economy did indeed grow by 4.1 percent in Q2, and that’s exactly the level of growth we want to see. Here are the details:
Gross domestic product grew at a solid 4.1 percent pace in the second quarter, boosting hopes that the economy is ready to break out of its decade-long slumber.
The number matched expectations from economists surveyed by Reuters and was boosted by a surge in consumer spending and business investment.
That’s the fastest rate of the growth since the third quarter of 2014 and the third-best growth rate since the Great Recession.
In recent days, White House officials have been indicating the reading will be strong.
President Donald Trump himself tweeted a few days ago that the U.S. has the “best financial numbers on the planet,” while National Economic Council Chairman Larry Kudlow predicted on Thursday that Q2 GDP will be “big.”
The administration has used a mix of tax cuts, deregulation and spending increases to goose growth. White House budget director Mick Mulvaney told CNBC earlier this week that deregulation likely has had the most impact so far as companies feel more comfortable about committing capital.
This is the first full quarter to reflect the effects of the tax cut passed in December, so it’s not surprising such strong numbers would come on the heels of a relatively modest – even disappointing – figure of 2.6 percent that we got in Q1. It’s also the first full quarter since Congress repealed the individual penalty for not having health insurance, and removed the ban on oil drilling in the Arctic National Wildlife Refuge. Much of the activity related to these moves is far off, but they represented a signal to the business community that this is an administration interested in its growth and success, not in finding excuses to sue, regulate and harass it out of existence.
Now, in fairness to the previous administration, this is not better than the best Obama quarter. That was 5.2 percent in the third quarter of 2014, and it followed an almost-as-strong 4.6 percent the previous quarter. But those quarters were anomalies within the Obama economic record, which could never sustain robust growth and always followed a good quarter or two with a bust.
Here’s a chart showing GDP growth quarter-by-quarter since 2014:
Support Canada Free Press
Four of Trump’s five quarters are better than any Obama quarter since Q1 2015, which is more an indictment of Obama than it is a positive reflection on Trump. You could plausibly attribute the stronger growth in the last three quarters of 2017 to business-sector relief that Obama was gone, and could no longer use federal agencies to invade their factories and shake them down for settlements.
But it’s what happens going forward from here that will really tell the story of Trump’s economic policies. We expected the tax cut to boost growth, and it clearly has. We expected Trump’s decision to ease off on regulations to have a positive effect, and it has. But one quarter of strong growth does not make for a sustained, growing economy. Even Obama had a few strong quarters. What we need to see now is if Americans under Trump’s policies can turn this into a sustained trend, with growth regularly coming in around 4.0 percent and occasionally topping 5.0 percent.
That would result in massive private-sector prosperity and a boom in federal revenues that would have a tremendously positive effect on budget deficits and debt costs. Everything about it would be good.
We hear that the president is considering another tax cut he could achieve with a single executive action – to index capital gains for inflation. He should do it. We also hope he will reconsider his love for tariffs and back off starting a trade war with friend and foe alike. The president’s instincts on trade threaten all the good he’s achieved thus far.
It’s one good quarter. One really good quarter. We’re glad to see it. We call it a good start. Now let’s turn it into the new new normal, and then we’ll really be getting somewhere.
It’s not the scorching 5.0 percent or more that we envisioned in our fondest dreams. It’s not the 4.5 percent that might have prompted us to throw a party. But 4.1 percent growth is well more than solid. It’s the sort of pace that would lead us to exceptional prosperity if it could be sustained over the long term.
Can it? That’s the key question, but the journey of a thousand miles begins with a first step, and we took it in the second quarter.
