The Pak Banker - - COMPANIES/BOSS -

The US econ­omy isn't mov­ing at warp speed, but it looks like it will be strong enough to han­dle an ex­pected in­ter­est rate in­crease later this year.

Fu­eled by solid con­sumer spend­ing, Thurs­day's re­port on the gross do­mes­tic prod­uct un­der­scored the steady growth that is likely to bol­ster the Fed­eral Re­serve's case that it will soon be time to make a move, per­haps in Septem­ber.

The econ­omy's to­tal out­put of goods and ser­vices re­bounded to a re­spectable an­nual rate of 2.3 per­cent in the April-June quar­ter, the best show­ing since last sum­mer. More­over, the first quar­ter man­aged to grow a slight 0.6 per­cent, re­vers­ing an ear­lier gov­ern­ment es­ti­mate of a con­trac­tion.

"The fact that the econ­omy im­proved mean­ing­fully in the sec­ond quar­ter and is likely to strengthen fur­ther in the cur­rent quar­ter should keep a Septem­ber rate hike on the ta­ble," said Sal Gu­atieri, se­nior economist at BMO Cap­i­tal Mar­kets.

While the latest fig­ures fall short of a boom, the United States ap­pears in bet­ter shape than other ma­jor eco­nom­ics of the world. China - the world's sec­ond-big­gest econ­omy - has seen a sharp drop in stock prices re­cently. Mean­while, Europe has been con­sumed with re­solv­ing a stub­born debt cri­sis in Greece.

The In­ter­na­tional Mon­e­tary Fund is fore­cast­ing that the 19 na­tions that use the euro cur­rency will grow a mod­est 1.5 per­cent this year. It ex­pects China to ex­pand 6.8 per­cent, which would be the slow­est growth rate for the coun­try in 25 years.

In the United States, econ­o­mists are hope­ful that the 1.5 per­cent av­er­age growth from Jan­uary through June will dou­ble in the sec­ond half of this year to around 3 per­cent. The op­ti­mism stems from pro­jected trends in con­sumer spend­ing, which should strengthen fur­ther in com­ing months thanks to ro­bust job gains. Un­em­ploy­ment hit a seven-year low of 5.3 per­cent in June, but the Fed says it wants to see more. It re­mains con­cerned about wage growth and the num­ber of part-time work­ers un­able to find full­time jobs. The Fed also needs to be con­vinced that price gains will even­tu­ally rise to­ward its tar­get of 2 per­cent a year. In­fla­tion has been run­ning well be­low that level for some time, a sit­u­a­tion that pol­i­cy­mak­ers view as a sign of a still-weak econ­omy.

The GDP re­port did of­fer some en­cour­age­ment on the in­fla­tion front. A price mea­sure tied to GDP rose at an an­nual rate of 2.2 per­cent in the sec­ond quar­ter. Ex­clud­ing food and energy costs, the price in­dex rose by 1.8 per­cent, up from 1 per­cent gains in the two pre­vi­ous quar­ters.

While the GDP re­port pro­vided sup­port for the Fed's march to­ward higher rates, econ­o­mists cau­tioned that a hike at the Sept. 16-17 meet­ing is by no means a cer­tainty. It will de­pend largely on in­com­ing data be­tween now and then, in­clud­ing two jobs re­ports and a re­vi­sion to Thurs­day's GDP es­ti­mate. "Data over the next two months re­tain their pri­mary po­si­tion in the de­ci­sion process," said Joel Naroff, chief economist at Naroff Eco­nomic Ad­vi­sors. The Fed noted in its post-meet­ing state­ment Wed­nes­day that the job mar­ket, hous­ing and con­sumer spend­ing had all im­proved. As ex­pected, it kept a key rate at a record low near zero, where it's re­mained since 2008. While many an­a­lysts peg Septem­ber for a rate hike, oth­ers aren't so sure. They con­tend that it may take longer for the Fed to see the im­prove­ments it seeks, de­lay­ing the first rate hike un­til as late as De­cem­ber. Fed Chair Janet Yellen has em­pha­sized in re­cent ap­pear­ances that if the econ­omy im­proves as she ex­pects, a rate in­crease will hap­pen be­fore the end of this year.

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