Today, the Bureau of Economic Analysis (BEA) released its initial estimate of major components of GDP for the second quarter of 2018, showing that the U.S. economy grew at an annual rate of 4.1 percent. The U.S. economy is likely on track to reach 3 percent GDP growth for the year, and growth this quarter reached the highest point since the third quarter of 2014. While a positive sign of continued economic expansion, it’s important to remember that this is a snapshot of economic activity over the last three months, not necessarily a long-term trend.
According to the BEA, second quarter GDP rose by 4.1 percent (annualized rate), which is up from the revised 2.2 percent growth in the first quarter of 2018. Exports increased 9.3 percent, likely in reaction to trade policy; companies rushed to export goods like soybeans before tariffs took effect. This particular change is not expected to persist. Personal consumption expenditures increased 4.0 percent, indicating that consumers are spending more. Gross private domestic investment decreased 0.5 percent, driven by a decrease in residential investment.
Today’s release also included a comprehensive update of the National Income and Product Accounts (NIPA). This update included changes the BEA made to seasonal adjustments, other measurement methods, and some definitions. The update also features a change in reference year, going from 2009 to 2012 for chained-dollar estimates.
As we noted last quarter, we should be careful making definitive conclusions from macroeconomic aggregates. A short time period is not sufficient to make conclusions about long-term policy changes, and these are estimates of economic activity that are often revised later. It is nearly impossible to tease out interactions among tariffs, trade uncertainty, tax policy, and hundreds of other changing economic factors, and we can never observe the counterfactual, or the economy in which tariffs had not been imposed and the taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. law never passed.
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