The economy powered ahead as economic growth in the first three months of the year blew economists’ expectations out of the water.
The gross domestic product, a measure of goods and services produced by the U.S., rose at an annual rate of 3.2 percent, up from 2.2 percent at the end of last year.
Here are 3 key insights about Q1 growth:
Exports are up, imports are down. Demand for American goods along with talk of tariffs drove foreign purchases of U.S. products higher while imported goods fell. Last quarter, net exports – when exports exceed imports – gave the overall GDP a major boost.
Consumers barely cracked open their wallets. Consumer spending is an important driver of our economy. American spending rose just 1.2 percent last quarter, down from 2.5 percent in the last quarter of 2018. Americans bought fewer big-ticket items like cars.
The economy shook off the government shutdown. Economists (and even the White House) warned that the economy might be dragged down because of the 35-day government shutdown which began in December and continued through January. Nonetheless, the resilient economy was enough to overcome consumer jitters because of the shutdown.
That doesn’t mean that the shutdown had no impact. The Bureau of Economic Analysis (BEA) estimated that the partial government shutdown lowered the overall growth rate of real GDP by 0.3 percentage point at an annual rate. That means economic growth could have been higher.
Today’s excellent economic growth underscores that our current economic expansion is not stopping any time soon. This expansion is on track to hit 10 years later this year, the longest on record.
While the expansion began under President Obama, it accelerated under President Trump due to economic policies – such as deregulation and tax cuts – that stimulate economic activity by individuals and the private sector rather than government spending.
Let’s just remember that under the Obama administration, 3-plus-percent growth enjoyed for decades prior was considered a dream of the past. Slow growth would be the “new normal” for our economy.
In 2017, Obama’s former director of the National Economic Council, Larry Summers, cynically wrote that President Trump’s budget forecasts based on 3-percent growth were “fair enough if you believe in tooth fairies and ludicrous supply-side economics.”
A 2013 Obama Department of Labor report noted that the recession “left lasting scars on the economy.” As a result, they predicted that “Annual U.S. GDP growth exceeding 3.0 percent, as experienced in the mid-to-late 1990s and mid-2000s, is not expected to be attainable over the coming decade.”
Former U.S. Treasury Secretary Jack Lew asked in a 2014 speech whether “something that has always been true in our past will be true in our future,” referring to sluggish growth.
Under President Obama, the answer was, “no” because his tax-spend-and-regulate policies don’t drive economies. Rather, economic freedom from pro-growth policies propels us ahead. We benefit from abundant jobs, rising wages, small-business growth, consumer optimism, and greater opportunity for all Americans.
There are areas of concern especially among home building and home sales, but overall this is new evidence that our economy is on the right track.