US economic growth in the second quarter is now thought to be stronger than previously reported, helped by stronger business investments and consumer spending.
The Commerce Department’s second estimate of Q2 gross domestic product released Wednesday printed at 3%. Economists had forecast a slight increase to 2.7% from 2.6% on the back of stronger consumer spending.
President Donald Trump had set a 3% target for long-term economic growth. Following just 1.2% GDP growth in the first quarter, the economy would need to continue growing at or exceed this pace to hit Trump’s mark on an annual basis for this year.
Treasury Secretary Steven Mnuchin has said it will take up to two years for the economy to sustain this pace. But some economists have said the target is too high. That’s partly because new technologies are not producing the same kind of productivity growth that they did before the Great Recession, said Gian Luca Clementi, an associate professor of economics at New York University’s Stern School of Business.
“If anything, President Trump has brought about a lot of policy uncertainty, and that is just bad news for the economy,” he told Business Insider.
Trump’s election did spur a spike in confidence among business owners, as they anticipated benefits from tax reform and deregulation. That may have encouraged some businesses to spend more; so-called non-residential fixed investment on factories, machinery, and other long-term equipment was revised up to 6.9% from 5.2%.
Personal consumption, the biggest contributor to economic growth, was revised up to 3.3% from 2.8%. It was led by spending on housing, utilities, prescription drugs, and cellphone services.
A third estimate of GDP based on more complete data will be released September 28.
Economists are also estimating how Hurricane Harvey could affect third-quarter growth.
“Our point estimate remains for a small drag on growth in Q3: measured Q3 real GDP growth will be only slightly (~0.1ppt QoQ SAAR) lower due to Harvey,” Citi’s Andrew Hollenhorst said in a note Tuesday.
“The output reduction could be greater if the disruption is longer lasting or if there are larger knock-on effects outside the region. For instance, stoppages at oil refineries could curtail activity further down the supply line.”