WASHINGTON, D.C.: The US economy grew much stronger than expected in the second quarter, bouncing back from a weather-battered first quarter, government data showed Thursday.
The world’s largest economy expanded at a annual rate of 3.7 percent in the April-June period, after a 0.6 percent pace in the first three months of the year, the Commerce Department reported.
That put gross domestic product growth running at 2.2 percent for the first half of the year, solid but a tick below the 2.4 percent expansion for 2014.
The second-quarter reading had been initially estimated at 2.3 percent and analysts had expected a revision upward to 3.1 percent.
The more robust second-quarter growth mainly reflected higher investment, state and local government spending, and consumer spending than was reported in the initial estimate.
Consumer spending, which accounts for about 70 percent of US economic activity, grew at a 3.1 percent annual pace, compared with the prior 2.9 percent estimate.
Business investments jumped at a 3.2 percent rate having been reported in decline.
“On balance, the Q2 revision is a breath of fresh air,” said Robert Brusca of FAO Economics.
The White House welcomed the “especially broad-based revision” that did not have downward revisions in the major components of GDP.
“At this time in the global economy, it is essential that we continue to do everything we can to maintain America’s domestic economic momentum,” said Jason Furman, chairman of the Council of Economic Advisers.
Even so, the data shows that the economy “despite all its volatility is still locked on the same shallow growth path that has been in place for the past several years,” said Steven Ricchiuto, chief economist at Mizuho Securities.
The US economy has been in a plowhorse recovery since the Great Recession ended in mid-2009, with slow expansion that has lowered unemployment close to the Federal Reserve’s desired level for maximum employment as it mulls raising interest rates for the first time in nine years.
Inventory surge weighs
The GDP report came amid weeks of global financial turmoil triggered by China’s economic slowdown, surprise currency devaluation and plunging stock markets.
That, and other factors in the data, for instance a higher gain in inventories than previously thought during the second quarter, pointed to likely more modest growth for the rest of the year,
“With inventories continuing to build unsustainably, the correction will undoubtedly impact growth in the third quarter, and perhaps the fourth,” Nariman Behravesh, chief economist at IHS.
“It is too soon to tell if recent unpredictability in world financial markets will result in a sharp adjustment as businesses react quickly to fears of holding significant excess inventory in such an environment,” he added.
The backward-looking data came as the Fed contemplates raising its benchmark federal funds rate this year, which has been pegged at the zero level since late 2008 to underpin the economy’s recovery.
Expectations that the Fed will raise the rate at its September 16-17 monetary policy meeting have dwindled as volatility roils financial markets.
“Inventories are a feeble foundation on which to rest growth prospects when inventories are high compared to sales and sales are shakier due to Wall Street’s woes,” Behravesh said.
“Thus, a riskier outlook for the last half increases the probability that the Federal Reserve will defer tightening until the financial waters are less choppy.”