NEW YORK — The U.S. economy bounced back to decent 2.6 percent growth in the second quarter, offering a modestly positive headline for President Donald Trump after a stinging loss on health care and fresh turmoil inside the West Wing.
The growth number reported by the Commerce Department improved on a revised 1.2 percent performance in the first quarter but was short of the 2.8 percent gain predicted by Wall Street analysts and the sustained 3 percent-plus expansion promised by the White House.
The GDP report comes as Trump hopes to pivot away from Thursday night’s health care debacle and turn his attention to tax reform and the economy. It also follows a difficult week for the West Wing in which new communications director Anthony Scaramucci was quoted using expletives to describe top aides Reince Priebus and Steve Bannon.
But the number isn’t nearly strong enough to blow those headlines off the front pages.
And economists warn that even this modest boost could be short-lived.
In recent years, the U.S. economy has often started off slowly, improved in the middle of the year, only to sag again toward the end. The economy grew 3.5 percent in the third quarter of 2016 before slowing down. It grew at 5 percent in the third quarter of 2014 before sputtering out.
The result each year has been a return to what some economists call the “new normal” of plodding annual growth of about 2 percent, dragged down by slow increases in worker productivity. One strong quarter for Trump does not mean he is on track to deliver on his promise of sustained annual growth of more than 3 percent.
And when Washington returns from summer break, Congress must figure out a way to keep the government funded and raise the debt ceiling to avoid a potentially catastrophic default.
“Even if the markets are juiced by good second-quarter GDP, there is a risk that it may be reversed as we come back from our summer holidays and the battle over the continuing resolution resumes with a potential government shutdown looming,” said Megan Greene, chief economist at financial services firm Manulife.
There is also little evidence that Trump’s policies have had much effect on the economy. Business and investor confidence soared after the election on hopes of deregulation and sweeping tax reform. The stock market also raced ahead. Shares on Wall Street have retained those gains, but other measures of confidence have begun to drop following the long fight over health care.
And Trump’s promise of the biggest tax cut in history remains far from fruition. The White House and congressional GOP leaders remain locked in negotiations over how much to cut the top corporate rate, how to adjust individual rates and how to pay for the whole thing to make sure any reform is permanent.
The “Big Six” tax reform negotiators released an update this week but it once again lacked any significant detail other than to officially announce the demise of a border adjustment tax that was to generate over $1 trillion in annual revenue to help offset the cost of reducing rates.
Wall Street still expects some kind of tax-cut package to move through Congress by early next year. But analysts say it will likely be fairly modest and won’t create the kind of sustained economic boom Trump has promised.
The first estimate of economic growth also often gets revised, so the number may not actually wind up as high as 2.6 percent.
“You should never read too much into any one quarter’s GDP data, especially the notoriously volatile first estimate which has a substantial guess component to it,” said Harvard professor Jason Furman, who served as chairman of the Council of Economic Advisers under former President Barack Obama.
The GDP report out Friday showed fairly balanced economic growth with increases in personal consumption, nonresidential fixed investment, exports and federal government spending. These were offset by negative contributions from private residential fixed investment, private inventory investment and state and local government spending. Imports, which subtract from GDP, also increased.