The Commerce Department reported the economy grew at a 2.3 percent annual rate in the second quarter, a substantial improvement from the 0.6 percent rate in the first quarter.
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“The second-quarter U.S. GDP data support the Fed’s more upbeat tone on economic conditions and suggests that the economy could cope with higher interest rates.” said Steve Murphy, U.S. economist with Capital Economics.
The stronger second-quarter growth was fueled by an increase in exports, consumer purchases and spending by state and local governments. The Fed said on Wednesday that economic activity has been expanding moderately in recent months despite a soft business investment and net exports.
Also note, though previous reporting showed the economy contracting slightly in the first quarter, this morning’s report said the economy actually grew a little – the final tally showed 0.6% growth, instead of 0.2% contraction. Nonetheless, a rate hike clearly remains a possibility as the central bank reiterated its viewpoint that the U.S. economy and job market continues to improve. “This will provide the necessary cover for the Fed to raise rates later this year, though the pace of tightening will be ‘gradual.'”. Federal Reserve Chair Janet Yellen said recently that any tightening – as the short-term rate increase is termed – would be done in a “prudent and gradual manner”.
The news also gives the Fed more to think about on whether or not it will raise interest rates. Strong personal consumption led the rebound as consumers spent more of the windfall gains from lower oil prices that they had saved in the first quarter, and numerous temporary factors that restrained growth in the first quarter faded.
Annual revision: The BEA also released its 2015 annual revision of the national income and product accounts, which updated most components for the last 3 years based on newly available and revised source data.
Wearing a red hat emblazoned with his campaign slogan “Make America Great Again”, the billionaire celebrity businessman spoke of how he would “get along very well” with Russian President Vladimir Putin and make the U.S military “so strong that nobody would mess with us”, if he became president.
Inventory investment slowed after the first quarter’s brisk pace.
With oil prices rising during the second quarter and consumer spending picking up, inflation accelerated sharply.
NonDurable Goods 3.6 0.7 2.1. Excluding food and energy prices, which can be volatile, so-called “core” prices surged 1.1 percent after a slight 0.2 percent rise.
While second-quarter GDP growth was a bit below economists’ expectations for a 2.6 per cent rate, the growth composition pointed to firming fundamentals. Meanwhile imports, which negatively impact GDP, increased.
The personal saving rate was 4.8 percent for the quarter, the same as the average of 2014.
Business spending remained a sore spot last quarter, with investment outside of residential real estate falling at a 0.6 per cent rate, the worst performance since the third quarter of 2012.
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Spending on mining exploration, wells and shafts plunged at a 68.2 per cent rate, the largest decline since the second quarter of 1986.
