Nobody can dispute that the US economy had good growth in the second quarter. Nobody, that is, except those who look at the number from a politically partisan point of view, or PPPOV.
The Bureau of Economic Analysis announced Friday that the nation’s gross domestic product grew at a 4.1 percent annual rate on an inflation-adjusted basis. That’s the figure you see in the headlines, and it’s exactly where the experts were predicting.
It’s also more than double the 2 percent annualized growth reported in 2018’s first quarter.
And if you back out inflation — a notoriously inaccurate figure — the economy was growing at a “nominal” annual rate of 5.4 percent.
Good job, President Trump!
But since I like to play the provocateur — and because it’s healthy to be skeptical — let me tell you why you might not want to get too excited.
- There are three reports on each quarters GDP — an initial reading plus two updates. The first reading. which is what Friday’s number was, is mostly made up of estimates. So the number could change dramatically. The PPPOVers will hope that it’s revised downward, but it could also go up when the numbers are perfected over the next two months.
- We’ve had false starts in the economy before. One particular fake out, in the second quarter of 2014 under President Obama, saw the GDP come in at 5.1 percent. That was followed by a 4.9 percent gain in the third quarter. Obama supporters clapped and cheered then just as hard as Trump supporters are clapping and cheering now. But then the economy coughed up a 1.9 percent gain in the fourth quarter. Fake out! In time it became clear the two outstanding quarters were only making up for a crappy first quarter of 2014 — when the GDP came in at a minus 1 percent.
- Of course there will be criticism (including from me) on how Trump got this growth. If you cut taxes and give people and companies money to spend, it’s easy to get high growth. The problem is, you are also depriving the Treasury of that tax money. And that’ll make the budget deficit and debt surge. Trump had better hope that the economy continues to accelerate beyond 4.1 percent growth or we are in deep trouble.
- And that 4.1 percent growth is an “annualized” figure. In case you don’t know what that means, this is it: The economy, with all the estimates and guesstimates put into Friday’s figure, actually grew by 1.025 percent in the second quarter. If it continues to grow at that rate for four straight quarters — annualized — then it will reach 4.1 percent. But we already know that growth in the first quarter was only 2 percent, so there’s little chance that all of 2018 will come in at 4 percent.
- Friday’s number almost guarantees the Federal Reserve will raise interest rates two more times this year — to get to the total of four that had been expected in 2018. The likelihood of a fourth rate hike, to come in December, is now 63 percent — up from 55.7 percent a week ago and 42 percent a month ago, according to CME Group’s FedWatch.
- Last, there are those who’ll say “who cares” what economic growth is? These PPPOVers will contend that Americans cannot be bought off with a good economy by a White House so evil. As Trump and President Clinton before him found out, voters really do care about the economy. And if Trump can keep it up, even some of the PPPOVers might have to come around — or at least give the devil his due.
