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Economy

US economy revives in 2nd quarter

WASHINGTON, D.C. – The U.S. economy revived in the second quarter, shaking off its winter slumber as consumers flung open their wallets and exports rebounded, official data released Thursday showed.

Gross domestic product expanded at an annual rate of 2.3 percent in the April-June period, the Commerce Department reported, slightly below the 2.5 percent consensus estimate.

That was the strongest pace of growth since the 2014 third quarter’s 4.3 percent as the world’s largest economy slowly recovers from the Great Recession.

The first quarter, marred by severe winter weather and West Coast port strikes, did not contract as previously estimated. GDP was revised to 0.6 percent growth from a 0.2 percent downturn.

“The economic recovery has lasted six years and shows no signs of old age. Most notably job growth is strong and broad-based, and wage increases are set to accelerate more significantly as the economy approaches full employment,” said Scott Hoyt of Moody’s Analytics.

Briefing.com analysts said the data showed “some mild improvements after the weak first quarter” but that growth trends were still below the economy’s 2.7-3.0 percent potential rate.

The fresh data raised speculation about the timing of the Federal Reserve’s plan to raise its near-zero key interest rate this year.

The central bank has kept the federal funds rate pegged at 0-0.25 percent since late 2008 to help pull the economy out of the severe 2008-2009 recession.

Some analysts said the U.S. economy appeared to have enough momentum to keep the Fed on track for the first hike in more than nine years.

“Updated GDP numbers deliver a double-punch to U.S. economy doom-mongers, painting a reassuringly bright picture of the health of the U.S. economy so far this year and raising the odds of the Fed hiking interest rates in September,” said Chris Williamson, chief economist at Markit.

It was the Commerce Department’s preliminary estimate for the second quarter, to be followed by two revisions.

Traders work on the floor of the New York Stock Exchange (NYSE) on July 29, 2015 in New York City. Following news that the Federal Reserve will keep interest rates unchanged combined with a continued recovery in oil prices, U.S. stocks closed higher on Wednesday.

Spencer Platt/Getty Images/AFP

Consumers drive growth

Second-quarter growth was fueled mainly by a solid increase in consumer spending, which accounts for about 70 percent of U.S. economic activity.

Spending jumped 2.9 percent, accelerating from a 1.8 percent increase in the first. Gains were led by higher spending on goods, with purchases of durable goods such as autos surging 7.3 percent.

Personal income growth picked up, leaving disposable personal income up 3.7 percent, double that of the first quarter. But households dug into their savings as they spent more. The personal saving rate fell from a revised 5.2 percent in the first quarter to 4.8 percent in the second.

There was a major turnaround in exports, which had been hit in the first quarter by the West Coast ports slowdown that choked traffic.

Exports of goods and services advanced 5.3 percent in the second quarter after plummeting 6.0 percent in the first.

State and local government spending as well as residential fixed investment also added to the rise in growth.

Those contributions were partly offset by declines in federal government spending, inventory investment, business investment and imports, which rose 3.5 percent, slowing by about half from the prior quarter’s increase.

Overall prices rose 1.4 percent in the second quarter after falling 1.6 percent in the first quarter. Excluding food and energy prices, which can be volatile, so-called “core” prices surged 1.1 percent after a slight 0.2 percent rise.

The personal consumption expenditures price index, the Fed’s preferred measure of inflation, rose to a 2.2 percent pace in the second quarter after two quarters of deflation. It was the largest increase since the 2012 fourth quarter and brought inflation above the central bank’s 2.0 percent target for annual inflation.

The core PCE price index rose to a 1.8 percent pace after two quarters of 1.0 percent gains.

In semiannual revisions, the Commerce Department said US GDP rose 2.0 percent from 2011 to 2014, down from its previous estimate of a 2.3 percent rate.

 

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