The US GDP surged by 3.2% in the first quarter of 2019 and outperformed all G7 economies as the economy appears to improved by 1% compared to the last quarter of 2018, making it the best quarter for the US economy since 2015, despite a five-week government slowdown from December to January.
The US government projects 3% growth in 2019, a significant increase from the 2.2% average over the last decade and, unlike in Europe, the US does not face the threat of a new recession in 2019.
The government shutdown did cost the economy 0.3% of GDP, which forced the government to delay investments in certain key industries, including oil and gas exploration. The combination of the shutdown and a developing trade war with China may have hurt consumer confidence, as spending on durable goods – from light trucks to electronics – dropped by 5.3%.
The drop, however, meant that imports fell which reduced the trade deficit and improved growth data. Strong growth has contributed to increased public investment in infrastructure at the state and local level, which surged by 3.9%. Political volatility may have boosted growth as businesses were stockpiled their inventory in preparation for a possible hike on import duties for Chinese products.
The Trump administration intends to make economic performance one of the main points for the president’s 2020 reelection campaign, which could be a winning strategy for the incumbent administration. Given the improved labour market and real wage growth, recent polling suggests that over 53% of Americans saw their personal finances improve over the last month.
A surging government deficit of $1 trillion, largely because of tax cuts and increased spending, resulting in a surge in debt-GDP ratio, remains a major issue for the Trump administration. The US’ record-low interest rates leave the economy with very little room to react if a downturn did come about as the effectiveness of both increased government spending and liquidity boosts have been largely exhausted.