U.S. Growth Picks Up: Normal Post-Winter Bounceback Or More?

Jul 28, 2017
Originally published on July 31, 2017 5:24 pm

The U.S. economy gained momentum in the second quarter as consumers and businesses picked up their spending. Gross domestic product grew at an annual rate of 2.6 percent, an improvement over the first quarter but still not approaching the dynamic economy President Trump promised during the campaign.

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A new look at the U.S. economy shows it is growing a bit faster. It grew at 2.6 percent annual rate during April, May and June, so says the government. The question is, was it just a normal bounce back from a winter funk? Or was it a breakout toward the 3 percent growth the Trump administration has promised? Here's NPR's John Ydstie.

JOHN YDSTIE, BYLINE: The stronger growth in the second quarter was more than double the pace posted in January, February and March. Among the big contributors was a pickup in business investment in things like plants and equipment, says Sara Johnson, an economist at IHS Markit.

SARA JOHNSON: It reflects a strengthening global economy and more export opportunities as well as sustained growth in the domestic economy.

YDSTIE: Those investments will help companies meet growing demand from consumers, which was also evident in today's GDP report. Today's data was a welcome bounce back from dismal first-quarter growth. But Megan Greene, chief economist at Manulife Asset Management, says it wasn't much more than that. When you average the growth rates for the first and second quarter, she says, you get an annual rate of just under 2 percent. And that's right where the U.S. economy has been for years.

MEGAN GREENE: The U.S. is fundamentally a 2 percent growth economy. And there is very little coming down the line that will shift the U.S. sustainably off of that 2 percent growth figure.

YDSTIE: Greene shares the view of many economists that U.S. growth is constrained by a slow-growing workforce and a lack of innovations that make workers more productive, innovations like the microchip or electricity. Of course, the idea that the U.S. is stuck in a 2 percent growth world is at odds with the Trump administration's view. It claims that it can boost long-term growth to 3 percent a year or more. Here's Treasury Secretary Steve Mnuchin testifying on Capitol Hill in May.


STEVE MNUCHIN: I believe that a goal of 3 percent GDP or higher economic growth is achievable if we make historic reforms to both taxes and regulation.

YDSTIE: IHS Markit's Sara Johnson says the administration might get a short burst from tax overhaul, but not long-term growth at 3 percent. Megan Greene agrees.

GREENE: We may get some short-term sugar hits to the U.S. economy. We might have some quarters of 3 percent GDP growth. But I don't think it will be sustained.

YDSTIE: So the U.S. is largely stuck in a 2 percent growth world, according to Greene. That's largely where we've been since the end of the Great Recession. And for millions of people, it's been a devastating time with no job or a low-paying job and little hope for the future. But Greene says compared to major competitors like Japan and Europe, U.S. growth actually looks good.

GREENE: Two percent isn't bad. I think that we're just looking at the wrong thing.

YDSTIE: Greene says GDP has been the gold standard for measuring our economic well-being. But a big part of the U.S. problem, she says, is the way GDP growth is distributed.

GREENE: It's not necessarily that we're just not growing enough. It's that a lot of people aren't feeling the benefits of our growth.

YDSTIE: Greene says it's time for the U.S. to pay more attention to inclusive measures of growth, not just GDP growth, like measures of income inequality, education and opportunity. John Ydstie, NPR News, Washington.

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