For once there can be no dispute about what Donald Trump says. The president has been boasting for months about how well the economy is doing and the latest set of official figures show that the president is absolutely right. The US is booming.
It was not just that headline growth – American GDP was expanding at an annualised rate of 4.1% in the second quarter – that was strong. All the important components of growth were up too: consumer spending by 4%, business investment by 7.3%, exports by 9.3%, federal government spending by 5.3%.
For Trump’s political enemies, the robust health of the world’s biggest economy raised the nightmare prospect that he might not after all be a one-term president. Since the second world war, only two presidents have been booted out by the voters after serving one full term: Jimmy Carter in 1980 and George Bush senior in 1992. On both occasions, the economy was in a much worse state than it is today.
So if job growth remains strong, consumers continue have money to spend, and shares on Wall Street carry on rising, Trump will have a simple message to voters. Forget everything you hear and read about and remember the words of Bill Clinton: it’s the economy, stupid.
The big question is whether the economy will still be humming along when the next presidential race takes place or whether the boom has come too soon. For, while the short-term prospects for the US look good, there are reasons to think growth will start to moderate during 2019.
The reason growth will remain strong for the rest of 2018 is simple. Trump inherited an economy that was already on the up and proceeded to give it an additional leg-up with corporate and personal tax cuts. The strong readings for consumer spending and investment are linked to the fiscal boost announced at the turn of the year.
Moreover, the only two elements of growth that were weak in the second quarter – housebuilding and the stockpiling of finished goods by companies – are likely to bounce back in the coming months.
For now, consumers are being insulated from the impact of tariffs by the boost from tax cuts. That won’t be the case next year, when the fiscal boost fades and higher interest rates start to bite. For Trump, this is as good as it gets.
