Economies in mirror appear larger than they are

During the 2016 presidential race, Donald Trump promised Americans that, as their president, he would usher in “tremendous” economic expansion of as much as six percent. While that growth rate has not materialized, the USA’s gross domestic product (GDP) grew at an annual rate of 4.1% in the second quarter of 2018. That’s respectable growth, so president Trump boasted that “we have accomplished an economic turnaround of historic proportions.” That’s true if you look back only the year and a half that Trump has occupied the Oval Office. However, if your historical perspective is longer, the proportion of the GDP’s growth is not so large after all (click chart below to view full size).

Quarterly GDP change higher than 4 percent
Highlighted quarters had greater than four percent GDP growth (annualized)

Other than Q2 2018, the GDP has grown less than three percent each quarter since Trump’s inauguration. In comparison:

  • There were four quarters during president Barack Obama’s term in which the growth rate exceeded 4.1%—once even surpassing five percent. And Obama had to start his term with the economy mired in the Great Recession that president Bush handed off to him.
  • The GDP growth was larger yet during president Bill Clinton’s administration. Trump’s best quarter so far would have been only the thirteenth best quarter during Clinton’s term, when eight quarters were larger than five percent and one even reached 7.5%. Now that’s HUGE by historic proportions!

It’s also important to understand that the Bureau of Economic Analysis reports quarterly results on an annualized basis. That means the growth rate it reports for each quarter is the amount the GDP would grow if the rate in the given quarter were to be sustained for an entire fiscal year. So the 4.1% annual growth rate Trump is touting is much larger than the actual rate the GDP has grown for any full year he has been POTUS.

Yes, growth was strong in Q2 2018. But the GDP only grew 2.2% (annualized) in the first quarter of this year. Therefore, for the GDP to achieve an actual growth rate of 4.1% for the full fiscal year 2018, the quarterly growth will have to average over five percent (annualized) in both of the remaining quarters of fiscal year 2018. It would be nice for the economy to grow that fast this year but, with the growing headwinds of an escalating trade war, it will be a very tall order.

So Americans should be pleased to see the strong growth the GDP underwent last quarter. But they need to keep in mind that it’s only a snapshot of a single quarter. In retrospect, the growth of the GDP appears larger than it was.

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