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US economy grew at 4.2 per cent in Q2

US economic growth has been a bit stronger than initially thought in the second quarter, notching its best performance in nearly four years and putting the economy on track to hit the Trump administration's goal of 3 per cent annual growth.

Gross domestic product increased at a 4.2 per cent annualised rate, the Commerce Department said on Wednesday in its second estimate of GDP growth for the April-June quarter. That was slightly up from the 4.1 per cent pace of expansion reported in July and was the fastest rate since the third quarter of 2014.

The slight upward revision to growth last quarter reflected more business spending on software than previously estimated and less imports of petroleum. Stronger software spending and a smaller import bill offset a downward revision to consumer spending.

Compared to the second quarter of 2017, the economy grew 2.9 per cent instead of the previously reported 2.8 per cent. Output expanded 3.2 per cent in the first half of 2018, rather than the 3.1 per cent estimated last month. The Trump administration has set a target of 3 per cent annual growth, which economists say is unsustainable because of structural constraints.

Robust growth in the second quarter was driven by one-off factors such as a $US1.5 trillion ($A2.1 trillion) tax cut package, which provided a jolt to consumer spending after a lacklustre first quarter, and a front-loading of soybean exports to China to beat retaliatory trade tariffs.

There are signs some of the momentum was lost early in the third quarter. The government reported on Tuesday that the goods trade deficit jumped 6.3 per cent to $72.2 billion in July as a 6.7 per cent plunge in food shipments weighed on exports.

While consumer spending has remained strong early in the third quarter, the housing market has weakened further with home construction rising less than expected in July and sales of new and previously owned homes declining.

The Trump administration's "America First" policies, which have led to an escalation of a trade war between the United States and China as well as tit-for-tat tariffs with the European Union, Canada and Mexico, pose a risk to the economy.

Economists had expected second-quarter GDP growth would be revised down to a 4.0 per cent pace. The economy grew at a 2.2 per cent rate in the January-March period.

The US dollar held near a session high against a basket of currencies after the data. US stock index futures were largely flat while prices of longer-dated US Treasuries were slightly higher.

Austrlaian Associated PressBack to Breaking News

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