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Business

US rebounds to 4% growth in second quarter

© Afp

Text by FRANCE 24

Latest update : 2014-07-30

US gross domestic product (GDP) grew at a 4.0 percent rate in the second quarter, the Commerce Department announced Wednesday, beating expectations as private investment and consumer spending appeared to be on the rebound.

In another sign that the US economy is stronger than previously thought, the Commerce Department also revised its estimate of the January-March contraction to 2.1 percent, down from the more severe 2.9 drop percent previously reported.

That pushed GDP above the economy’s potential growth trend, which analysts put at a pace somewhere between 2 and 2.5 percent. Economists had forecast the economy growing at a 3.0 percent rate in the second quarter after the previously reported 2.9 percent contraction.

The economy grew 0.9 percent in the first half of this year and growth for 2014 as a whole could average above 2 percent. The first-quarter contraction, which was mostly weather-related, was the largest in five years.

"The upturn in part reflects a rebound from the first quarter, when adverse weather disrupted businesses across many parts of the country," said Chris Williamson, chief economist at Markit.

"However, this is not just a case of better weather. There is evidence to indicate that there has also been an underlying improvement in the economy, and that robust growth will be sustained into the third quarter."

Job growth

Employment growth, which has exceeded 200,000 jobs in each of the last five months, and strong readings on the factory and services sectors from the Institute for Supply Management underpin the bullish expectations for the rest of the year.

Growth in the second quarter was driven mainly by consumer spending and a swing in business inventories.

Consumer spending growth, which accounts for more than two-thirds of US economic activity, accelerated at a 2.5 percent pace, as Americans bought long-lasting manufactured goods and spent a bit more on services.

Consumer spending had braked to a 1.2 percent pace in the first quarter because of weak healthcare spending.

Despite the pick-up in consumer spending, Americans saved more in the second quarter. The saving rate increased to 5.3 percent from 4.9 percent in the first quarter as incomes rose, which bodes well for future spending.

Inventories contributed 1.66 percentage points to GDP growth after chopping off 1.16 points in the first quarter.

The economy also received a boost from business investment, government spending and investment in home building.

Trade, however, was a drag for a second consecutive quarter as some of the increase in domestic demand was met by a surge in imports. Domestic demand rose at a 2.8 percent pace, the fastest since the third quarter of 2011. It increased at a 0.7 percent pace in the first quarter.

The GDP data, which was released only hours before Federal Reserve officials conclude a two-day policy meeting, could fuel debate on whether the central bank may need to raise interest rates a bit sooner than had been anticipated.

(FRANCE 24 with REUTERS and AFP)

 

Date created : 2014-07-30

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