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September 30, 2016

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Home » Business » Economy

Investments, exports up, boosting US outlook

US economic growth was less sluggish than previously thought in the second quarter as exports grew more than imports and businesses raised their investments, hopeful signs for the economic outlook.

Gross domestic product expanded at a 1.4 percent annual rate, the Commerce Department said yesterday in its third estimate of GDP. That was up from the 1.1 percent rate it reported last month and higher than analysts’ expectations.

The revision incorporated data that showed businesses cut investments in buildings and equipment less than the government previously estimated, while they sank more money into research and development.

That left growth in overall business investment at a 1 percent annual rate, its first gain since the third quarter, and suggests the worst of an energy-sector-led slump in business investment might be over.

The slump, fueled by a sharp drop in oil prices that hit America’s energy industry, has worried policy-makers at the Federal Reserve because less investment could hurt economic growth over the longer term.

The economy has struggled to regain momentum since output started slowing in the last six months of 2015 and the overall growth rate for GDP in the second quarter remained below historically normal rates. That could give grist to Republican Presidential candidate Donald Trump’s argument that the economy has sickened under the Obama administration.

At the same time, consumer spending, which makes up more than two-thirds of US economic activity, was robust in the second quarter, rising at a 4.3 percent annual rate, while growth in exports outstripped that of imports enough to boost GDP by the most since the third quarter of 2014.

But companies continued to run down their inventories aggressively, reducing stocks by US$50.2 billion and subtracting from GDP growth, while home building also sank.

The GDP data is unlikely to have much impact on the near-term outlook for monetary policy although it could make Fed policy-makers more confident the US economy is resisting weaker growth abroad.

Federal Reserve Chair Janet Yellen repeated on Wednesday that Fed policy-makers expect to raise interest rates by the end of the year because they worry that gathering steam in the US labor market could fuel inflation.


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