Share

Economy surged in second quarter

Commerce initially said inventories were a small drag on growth.

Advertisement

Despite China’s slowdown that has triggered turbulence in financial markets and further declines in commodity prices, readings thus far show U.S. consumer confidence holding up.

And while Thursday’s GDP reading is highly backward looking as it covers the 3-month period ending June 30, every piece of data is now closely watched as markets seek to read the tea leaves ahead of a potential rate hike from the Federal Reserve in September. While the job market has made strides since the recession ended, inflation remains well short of the central bank’s goal. The Commerce Department has been revising GDP estimates on a regular basis, however a 50% “upgrade” is somewhat unusual. Forecasts ranged from 2.3% to 3.6%.

Wednesday’s report was the government’s second estimate of GDP growth in the second quarter.

In the first quarter, the economy grew only 0.6 per cent under pressure from severe winter weather and West Coast port strikes.

The average of GDP and GDI showed the economy grew 2.1% in the second quarter. From the same time previous year, profits were down 0.5%.

An upward revision had been expected, but Thursday’s report on the nation’s gross domestic product was even better than what most economists had anticipated, thanks mostly to stronger business investments and the best percentage increase in state and local government expenditures in almost 14 years.

Spending on residential construction was raised to a 7.8 percent pace from a 6.6 percent rate. But there have been some positive indicators in the third quarter as well, including gains last month in orders for durable goods.

The trade deficit was smaller than previously reported, adding 0.23 percentage point to GDP growth. These measures both slightly decreased in the first reading. “Employment is strong. The housing recovery is going to continue”.

Poor growth in the first quarter and the recent turmoil in markets had prompted some observers to push out their expectations for a rise in rates to next year.

Exports of goods and services rose 5.2% in the second quarter while imports grew 2.8%. They climbed by $47.7 billion in the second quarter. Gross Domestic Income, another measure of output calculated from income rather than spending, was clocked at a much slower 0.6 percent annual rate. My response is simple – FEMA had no authority to do that under the Constitution, which clearly establishes a system of federalism in which state and local governments are autonomous governmental entities.

Analysts said the revision would be welcome news to investors that have experienced a tough week on global stock markets, triggered by fears that the Chinese economy is slowing.

Advertisement

Yesterday, president of the New York branch of the Federal Reserve William Dudley said the recent volatility in China makes a US rate hike next month less attractive.

Economy surged in second quarter