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What's Behind The Surge In GDP

RACHEL MARTIN, HOST:

Big economic numbers are out today. In the second quarter of the year, the U.S. economy grew by 4.1 percent. Here's what President Trump said in front of the White House this morning.

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PRESIDENT DONALD TRUMP: We've accomplished an economic turnaround of historic proportions. When I came into office, 1.5 million fewer prime-age Americans were working than eight years before.

MARTIN: We are joined now by David Wessel, longtime economic policy reporter. He's also the director of the Hutchins Center at the Brookings Institution - frequent guest on our show. Hey, David.

DAVID WESSEL: Good morning.

MARTIN: How big a deal is this - 4.1 percent growth?

WESSEL: Well, it is definitely good news, and the presidents always get credit, whether they deserve it or not, when the economy does well. And I think the Trump administration does deserve some credit for this in two respects. One is tax cuts do give the economy a boost, so that's a plus. And the other is, in a strange way, all this trade war stuff led the Chinese and others to buy a lot of stuff from the U.S. in the second quarter to avoid tariffs. And so that gave us a little artificial boost.

MARTIN: So that's the key, though, right? If people were trying to pre-empt inevitable price hikes that were going to come with these tariffs, so they stocked up on, say, soybeans, that means that these numbers are going to be tough to sustain over time.

WESSEL: Correct. That's absolutely right. So there are two things that I think we need to remind the president of. One is this historic turnaround stuff is a bit hard to take. There were four quarters in the Obama presidency where GDP was at 4 percent - 4 1/2 percent or better. So we do have strong quarters from time to time. This was a strong quarter. But the second thing - and you put your finger on it - is, is this sustainable? Most economists say it isn't. They don't expect us to keep up this pace over the next several quarters. We'll see. The president and his administration, of course, are very optimistic, but I think it's hard to do.

MARTIN: The president also used his remarks to talk about the trade deficit, and he said it's down by more than $50 billion. Is that true? If so, what are the implications?

WESSEL: Well, I haven't actually looked at the hard numbers, but the trade deficit was down in the second quarter, and that's part because we exported a lot of stuff, partly the soybeans and some oil that people were buying to avoid tariffs that Chinese opposing on our goods. I think, like most economists, that the president is way too focused on the trade deficit as sort of the nation's bottom line. It isn't. But I think it's important to not take away from the fact that the economy is doing pretty well. It has - there are lots of causes for that. They're not all the president's doing. But we don't want to pretend that he's not correct to say, hey, this is a good number.

MARTIN: So the question really is, can it be repeated? Larry Kudlow - it's worth pointing out - the president's economic adviser, this morning in his remarks saying this number will be repeated till the day is done. I am paraphrasing there. But we will see.

WESSEL: We will see. I guess - I'm guessing he's wrong, but we'll see.

MARTIN: David Wessel - senior fellow in economic studies at the Brookings Center and director of the Hutchins Center at Brookings Institution. Thanks so much, David.

WESSEL: You're welcome. Transcript provided by NPR, Copyright NPR.