Growth could reach 15-year high — but don’t expect it to last
The U.S. economy built up a good head of steam in the spring - so much that quarterly GDP might hit a 15-year high.
Some forecasting pros suggest the U.S. economy could top 5% growth in the period running from April to June, perhaps clearing the highest bar in 15 years.
After a surprising drop in the U.S. trade deficit in May, a handful of Wall Street firms jacked up their estimates for the second quarter and more are likely to do so.
Most notably, Macroeconomic Advisers raised its forecast to 5.3% from 4.5% for gross domestic product, the official scorecard for the U.S. economy. The firm’s forecast is one of the most detailed on Wall Street.
A closely followed GDP tracker by the Atlanta Federal Reserve, meanwhile, estimates the U.S. will expand at a 4.5% annual rate in the second quarter.
The single best quarter of economic growth since the end of the recession was in the fall of 2014, when GDP surged by 5.2%.
Why is the economy suddenly growing so fast? Consumer spending has bounced back after a paltry increase early in the year, buoyed by tax cuts and a strong labor market in which jobs are plentiful. Business investment has been strong. And the nation’s trade deficit has been smaller than expected.
Expecting the economy to grow that fast beyond the second quarter is a stretch, though.
Incomes aren’t rising fast to enough to support such high levels of household spending, for one thing. Businesses are also getting skittish as trade disputes between the Trump White House and other countries intensify. Some dropoff in spending and investment is likely.
A pattern of stop-and-go growth has been one of the hallmarks of the current nine-year-old expansion. One result is that the economy has failed to top 3% annual growth for 12 straight years, the longest streak in modern U.S. history.
The U.S. might be on track to end that streak this year, but economists doubt the strong growth can last. Most predict GDP will slow in 2019 and 2020 as the effects of the recent tax cuts and an increase in government spending fade.