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August 29, 2018 10:30 AM, EDT

US Economy Grew at Brisk 4.2% Annual Rate Last Quarter

Factory robots Bryan Mitchell/Bloomberg News

WASHINGTON — The U.S. economy grew at a strong 4.2% annual rate in the April-June quarter, the best showing in nearly four years, as growth stayed on track to produce its strongest gain in more than a decade. Strength in business investment offset slightly slower consumer spending.

The Commerce Department on Aug. 29 revised up its estimate of growth for last quarter from an initial estimate of a 4.1% annual rate. The second quarter marked a sharp improvement from a 2.2% gain in the January-March period, though some of the strength last quarter came from temporary factors, including a surge in U.S exports before tariffs were to take effect.

Economists expect growth to slow to a still solid 3% annual rate the rest of the year, resulting in full-year growth of 3% for 2018, which would be the best performance since 2005, two years before the Great Recession began.

The 4.2% annual growth that the government estimated for last quarter is the strongest figure since a 4.3% annual gain in the third quarter of 2014. The expectation of 3 % growth for the entire year would be up from gains of 1.6% in 2016 and 2.2% last year.

Since the recovery began in mid-2009, growth has been subpar, with annual gains averaging just 2.2%, making this the weakest recovery in the post-war period.

President Donald Trump often pointed to that fact during the 2016 presidential campaign to attack the economic record of the Obama administration He has touted the recent pickup in GDP as evidence that his economic program of tax cuts, deregulation and tougher enforcement of trade agreements is working. Last month, Trump proclaimed that the GDP figure showed that the United States was now the “economy envy of the world.”

While forecasting solid growth around 3% this year, economists contend that this performance is being pumped up by the $1.5 trillion tax cut Trump pushed through Congress last year along with increased government spending. Most analysts say they think those factors will begin to fade starting next year and that by 2020, growth may even slow enough to edge the economy close to a possible recession.

The Trump administration rejects that outlook, arguing that its policies will unleash an economic boom that will produce annual growth of 3% or better over the next decade.

Treasury Secretary Steven Mnuchin, in a CNBC interview on Aug. 28, pointed to the solid GDP performance in the spring as evidence that the administration is fulfilling Trump’s campaign promises regarding the economy.

“We are delivering on what was the president’s economic agenda about creating growth,” Mnuchin said.

The GDP report Aug. 29 showed that consumer spending, which accounts for about 70% of economic activity, expanded at a strong annual rate of 3.8% in the second quarter, down slightly from an initial estimate of 4% growth in consumer spending. But that downward revision was outweighed by other factors including stronger business investment, which grew at a 6.2% rate, driven by spending on such items as computer software.

Other sources of strength were less growth in imports, which subtract from GDP, and faster growth in government spending at the federal and state and local levels.