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U.S. economy grows at the fastest pace since 2014

Myles Udland
Markets Reporter

The second quarter was big for the U.S. economy.

In the second quarter, the U.S. economy grew at an annualized rate of 4.1%, almost double the 2.2% growth rate seen to start the year.

This marks the fastest pace of growth for the U.S. economy in any quarter since the third quarter of 2014.

This rate of growth, however, was less than what was forecasted by economists. Economists polled by Bloomberg expected the report to show the economy grew at an annualized rate of 4.2% in the second three months of the year.

Speaking from the South Lawn of the White House Friday morning, President Donald Trump boasted about the GDP numbers, saying that his administration has “accomplished an economic turnaround of historic proportions.”

“The most important thing,” Trump added, “is these [GDP numbers] are sustainable. This isn’t a one-time shot. I happen to think we’re going to do extraordinarily well in our next report…I think the numbers are going to be outstanding.”

At an event on Thursday, Trump said of the GDP number, “If it has a 4 in front of it, we’re happy.” 

In the second quarter, economic growth hit its fastest pace of growth since the third quarter of 2014. (Source: BEA)

Paul Ashworth, chief US economist at Capital Economics, said Friday, “Overall, helped by the massive fiscal stimulus, the economy enjoyed a strong first half of this year but, as the stimulus fades and monetary policy becomes progressively tighter, we expect GDP growth to slow markedly from mid-2019 onwards.”

Ian Shepherdson, an economist at Pantheon Macroeconomics, said following Friday’s report, “In one line: Looks great; won’t last.”

Shepherdson added, “Looking ahead, the big stories for Q3 will be the slowdown in consumption — Q3 probably was boosted by the tax cuts, but the incremental cashflow effect is now zero — and the reversal of the Q2 inventory and trade swings.”

Friday’s report also showed that personal consumption in the second quarter grew at an annualized rate of 4%, a major jump from the 0.5% pace of consumption growth seen to start the year.

Meanwhile core PCE prices, a measure of inflation, grew 2% quarter-on-quarter, less than expected and a slight deceleration from the 2.2% pace of price growth seen to start the year.

The acceleration in real GDP growth in the second quarter reflected accelerations in PCE and in exports, a smaller decrease in residential fixed investment, and accelerations in federal government spending and in state and local spending, the BEA said in its release Friday.

These movements were partly offset by a downturn in private inventory investment and a deceleration in nonresidential fixed investment. Imports decelerated.

The growth of inflation-adjusted personal income slowed somewhat in the second quarter, rising 2.6% against a 4.4% increase in the first three month of the year. The personal savings rate also fell in the second quarter, hitting 6.8% against 7.2% in the first quarter of the year.

Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland