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GDP Is Up 4.1 Percent: What That Means

RACHEL MARTIN, HOST:

Today, we are talking about breaking news this morning - record economy numbers, the economy growing by 4.1 percent in the second quarter. And I am joined now by NPR's Chris Arnold, who has been following this this morning. Chris, this is, by all accounts, good news for the Trump administration. This is something that they had been hoping for.

CHRIS ARNOLD, BYLINE: Hey, Rachel, yes, it is. And, you know, we can back up a bit and say that President Trump's been promising to launch the economy into this higher gear. He's even predicted twice the growth rate of recent years, up from around 2 percent annual growth to 4 percent. That may not sound like a lot but it would be a very, very, very big deal. And economists have scoffed at this saying, no, no, no, you know, that's impossible. And in a much-anticipated reading just out this morning, the president got the number he was talking about. At least for the second quarter - and we can emphasize that - gross domestic product grew at a strong 4.1 percent. So that certainly does sound very good.

MARTIN: The question is whether or not this is sustainable - right? - because as I have heard others analyze and try to unpack these numbers, some of this is an inflated growth because people were trying to pre-empt the effect that tariffs on certain products, including soybeans, were going to have. So they were essentially stocking up, which then is kind of padding these numbers.

ARNOLD: Right. And so, I mean, first, let's say that right now, in this particular snapshot of several months, the economy looks really strong, right? We're - it's growing faster than we've seen in several years. And part of that is what you're talking about. The stars have aligned here in sort of reasonable and some perverse ways. Ian Shepherdson, he's a chief economist with Pantheon Macroeconomics, he was anticipating a big number like this above 4 percent. Here's what he said this morning when I asked him about this.

IAN SHEPHERDSON: The main story really is that consumers were really on a tear. We saw 4 percent growth in consumer spending. That's the biggest part of the economy by far.

Almost $7 in every $10 spent in the U.S. is by consumers. And the trend there is about 2 1/2 percent. So to grow at 4 probably tells you people were spending the tax cuts that they enjoyed back in January. But that's extremely unlikely to happen again.

MARTIN: Interesting.

ARNOLD: Yeah. So I think the question you were asking is, how long can this last? And, you know, the president's already out there tweeting this morning, you know, great GDP numbers. And, look; if the president could take economic growth and really bring it up from 2 percent to 4 percent, not just for one quarter but, as he's talked about, for a decade, that would be, you know, huge as he likes to say, you know. So, I mean, this would be a big boost in the standard of living, higher wages, better public services. The government would bring in more taxes. It would just be like a bold, new, golden age.

But, I mean, nobody - almost no serious economists think we're actually there yet. This is one set of numbers. And you were talking about - you brought up this thing about tariffs sort of having this provision. So, all right, what's going on there is that - OK, so we're - obviously we have this big trade fight going on. And one sort of weird outcome of that is that soybeans were about to get these huge tariffs slapped on them by China for retaliation...

MARTIN: Yeah.

ARNOLD: ...Purposes. And so what happened was China went on this huge buying spree and bought, like, massive amounts of soybeans. In fact, so many soybeans were bought by China it moved, like, the entire economic output numbers for the United States. It was huge. So that - now the tariffs are in place.

MARTIN: Yeah.

ARNOLD: That's obviously not going to happen again.

MARTIN: All right. We are going to keep following this throughout the morning. NPR's Chris Arnold, thanks so much.

ARNOLD: Absolutely. Thanks, Rachel. Transcript provided by NPR, Copyright NPR.