US economy grows faster in Q2
Print Edition
THE US economy grew faster than initially thought in the second quarter on solid domestic demand, showing fairly strong momentum that could still allow the Federal Reserve to hike interest rates this year.
Gross domestic product grew at a 3.7 percent annual pace instead of the 2.3 percent rate seen last month, the Commerce Department said yesterday in its second GDP estimate.
The GDP report, which was released in the wake of a global stock market sell-off, should assure investors and cautious Fed officials that the United States was in good shape to weather the growing strains in the world economy.
Concerns over slowing economic growth in China sent global equity markets into a tailspin last week, raising doubts that the US central bank would raise its short-term interest rate next month.
On Wednesday, New York Fed President William Dudley said that prospects of a September lift-off in the central bank’s key lending rate “seems less compelling to me than it was a few weeks ago.”
The upward revisions to second-quarter growth also reflected the accumulation of US$121.1 billion worth of inventories, US$11.1 billion more than previously estimated. That meant inventories contributed 0.22 percentage point to GDP instead of subtracting 0.08 percentage point as reported last month.
While the huge inventory build will likely weigh on growth in the third quarter, the blow could be softened by rebounding business investment in capital goods.
Economists polled by Reuters had expected that second-quarter GDP growth would be revised to a 3.2 percent rate.
The economy grew at a 0.6 percent rate in the first quarter. Output rose 2.2 percent in the first half of the year compared with growth of 1.9 percent during the same period in 2014.
Underscoring the solid economic fundamentals, a measure of private domestic demand that excludes trade, inventories and government expenditures rose 3.3 percent in the second quarter, instead of the previously reported 2.5 percent pace.
Consumer spending, which accounts for more than two-thirds of US economic activity, grew at a 3.1 percent rate, rather than the 2.9 percent pace reported last month. Consumer spending got off a to brisk start in the third quarter, with retail sales rising solidly in July.
A strong labor market, cheaper gasoline and relatively higher house prices are boosting household wealth, helping to support consumer spending.
The employment picture was further brightened yesterday by a separate report from the Labor Department showing initial claims for state unemployment benefits slipped 6,000 to a seasonally adjusted 271,000 for the week ended on Saturday.
It was the 25th straight week that claims remained below the 300,000 threshold, which is usually linked with a strengthening labor market.
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