Consumers, businesses likely spurred US economic pickup in 2Q

WASHINGTON: The US economy likely accelerated in the second quarter as consumers ramped up spending and businesses invested more on equipment, which would confirm that the sluggish performance early in the year was temporary.

Gross domestic product probably increased at a 2.6 per cent annual rate in the April-June period, according to a Reuters survey of economists.

The poll, however, was conducted before the release of data on Thursday that showed a sharp drop in the goods trade deficit in June and strong gains in wholesale and retail inventories.

That data prompted economists to raise their GDP growth forecasts to as high as a 3.5 per cent rate, which would be more than double the first quarter’s 1.4 per cent growth pace.

The Commerce Department will release its advance second-quarter GDP estimate on Friday at 8:30 am EDT (1230 GMT).

A rebound in growth, together with a tightening labour market, would leave the Federal Reserve on course to announce a plan to start reducing its US$4.2 trillion portfolio of Treasury bonds and mortgage-backed securities in September as well as raise interest rates for a third time this year.

“The Fed is certainly looking for a rebound in the strength of GDP growth that maintains the moderate economic expansion we have seen during this current economic cycle,” said Sam Bullard, a senior economist at Wells Fargo Securities in Charlotte, North Carolina.

“That would allow plans for further monetary policy tightening.” The US central bank left rates unchanged on Wednesday and said it expected to start winding down its portfolio ‘relatively soon.’ Even if GDP growth regains momentum in the second quarter, it will probably not exceed 2.5 per cent for the full year.

President Donald Trump had set an ambitious 3.0 per cent growth target for 2017.

While the Trump administration has vowed to cut corporate and individual taxes as part of its business-friendly agenda, Republicans’ struggles in Congress to pass a healthcare restructuring have left analysts sceptical on the prospects of fiscal stimulus.

So far, the impasse in Washington has not hurt either business and consumer confidence.

A resurgence in consumer spending likely accounted for the bulk of the pickup in economic growth in the second quarter.

Consumer spending, which accounts for more than two-thirds of the US economy, grew at a 1.1 per cent rate in the first quarter, the weakest performance in a year. — Reuters