News

U.S. economy bounces back in second quarter

U.S. economy bounces back in second quarter

ECONOMIC OUTLOOK:Consumer spending growth, which accounts for more than two-thirds of U.S. economic activity, accelerated at a 2.5 percent pace, as Americans bought long-lasting manufactured goods and spent a bit more on services. Photo: Associated Press

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. economic growth accelerated more than expected in the second quarter and the decline in output in the prior period was less steep than previously reported, bolstering views for a stronger performance in the last six months of the year.

Gross domestic product expanded at a 4.0 percent annual rate as activity picked up broadly after shrinking at a revised 2.1 percent pace in the first quarter, the Commerce Department said on Wednesday.

That pushed GDP above the economy’s potential growth trend, which analysts put somewhere between a 2 percent and 2.5 percent pace. Economists had forecast the economy growing at a 3.0 percent rate in the second quarter after a previously reported 2.9 percent contraction.

A separate report showing private employers added 218,000 jobs to their payrolls last month, a decline from June’s hefty gain of 281,000, did little to change perceptions the economy was strengthening.

U.S. stock futures added to gains and yields on U.S. Treasuries rose after the data. The U.S. dollar hit a seven-week high against the yen and an eight-month high against the euro.

The economy grew 0.9 percent in the first half of this year and growth for 2014 as a whole could average above 2 percent. The first quarter contraction, which was mostly weather-related, was the largest in five years.

Employment growth, which has exceeded 200,000 jobs in each of the last five months, and strong readings on the factory and services sectors from the Institute for Supply Management underpin the bullish expectations for the rest of the year.

The government also published revisions to prior GDP data going back to 1999, which showed the economy performing much stronger in the second half of 2013 and for that year as a whole than previously reported.

EYES ON THE FED

The GDP data, which was released only hours before Federal Reserve officials conclude a two-day policy meeting, could fuel debate on whether the central bank may need to raise interest rates a bit sooner than had been anticipated.

Growth in the second quarter was driven mainly by consumer spending and a swing in business inventories.

Consumer spending growth, which accounts for more than two-thirds of U.S. economic activity, accelerated at a 2.5 percent pace, as Americans bought long-lasting manufactured goods and spent a bit more on services.

Consumer spending had braked to a 1.2 percent pace in the first quarter because of weak healthcare spending.

Despite the pick-up in consumer spending, Americans saved more in the second quarter. The saving rate increased to 5.3 percent from 4.9 percent in the first quarter as incomes rose, which bodes well for future spending.

Inventories contributed 1.66 percentage points to GDP growth after chopping off 1.16 points in the first quarter.

The economy also received a boost from business investment, government spending and investment in home building.

Trade, however, was a drag for a second consecutive quarter as some of the increase in domestic demand was met by a surge in imports. Domestic demand rose at a 2.8 percent pace, the fastest since the third quarter of 2011. It increased at a 0.7 percent pace in the first quarter.

Solid demand, which underscores the economy’s firming fundamentals, led to some pick-up in price pressures in the second quarter, a welcome development for Fed officials who have long worried about inflation being too low.

A price index in the report rose at a 2.3 percent rate in the second quarter, the quickest in three years, after advancing at a 1.4 percent pace in the prior period.

A core price measure that strips out food and energy costs increased at a 2.0 percent pace, the fastest since the first quarter of 2012. It had increased at a 1.2 percent rate in the first quarter.

(Reporting By Lucia Mutikani; Additional reporting by Richard Leong in New York; Editing by Paul Simao)

Recent Headlines

2 days ago in Local

PDR Disabled You Deer Hunt Looks For Disabled Children

fawn_deer

The PDR Disabled Youth Deer Hunt is looking for disabled adolescents to attend a free whitetail deer hunt.

2 days ago in Local

Gov Dayton Says Clinton is Best Qualified for President

Democratic presidential candidate Hillary Clinton speaks at New York University's Kaufman Management Center

Featuring: Hillary Clinton
Where: New York City, New York, United States
When: 24 Jul 2015
Credit: Dennis Van Tine/Future Image/WENN.com

**Not available for publication in Germany, Poland, Russia, Hungary, Slovenia, Czech Republic, Serbia, Croatia, Slovakia**

Minnesota Governor Mark Dayton has maintained support for Presumptive Democratic Nominee, Hillary Clinton

2 days ago in Local

Epidemiologist Warns of Ticks Over Memorial Day Weekend

Lake Oakwood Shore-approved-inhouse

With Memorial Day weekend just ahead, thousands of Nebraskans will be heading out on their first camping trips of the season -- and they'll need to take precautions against ticks.

2 days ago in Local

Iowa Police Chief Retires

police to protect and to serve approved clipart

Officials in Iowa City will be looking for a new police chief. Sam Hargadine on Monday announced his retirement, effective June 30.

3 days ago in Local

Dairy Overlay District May Come Soon to Yankton

DairyCows

The Yankton County Commission will host a public meeting this week to talk about forming a dairy overlay district.