US economy grew 3.7pc in 2Q, more than forecast
The economy grew more than previously estimated in the second quarter on bigger gains in consumer and business spending that show the US expansion got back on track.
A surge in inventories also signals such strong growth will be difficult to sustain in the short run. Gross domestic product, the value of all goods and services produced, rose at a 3.7 percent annualized rate, exceeding all estimates of economists surveyed by Bloomberg and up from the 2.3 percent the Commerce Department reported last month, figures showed Thursday in Washington. American households, bolstered by gains in employment, rising home prices and cheaper fuel costs, will probably continue to spur the economy in the second half of the year.
At the same time, a record surge in stockpiles represents another headwind for manufacturers already contending with a rising dollar and slumping emerging markets that have hurt exports.
"The economy was on firm footing coming into the second half," Millan Mulraine, deputy head of research and strategy at TD Securities USA LLC in New York, said before the report. "
The outlook going forward has more to do with global markets."
The report comes as Federal Reserve policy makers debate whether growth is strong enough to withstand the first increase in the benchmark interest rate since 2006. While the job market has made strides since the recession ended, inflation remains well short of the central bank's goal. Additionally, the global plunge in stocks also could argue for a delay.
The median forecast of 79 economists surveyed by Bloomberg called for a 3.2 percent gain in GDP, or the value of all goods and services produced. Forecasts ranged from 2.3 percent to 3.6 percent.
A report Thursday from the Labor Department showed fewer Americans applied for unemployment insurance benefits last week. Jobless claims declined by 6,000 to 271,000 in the week ended Aug. 22. That's just above a four-decade low of 255,000 reached in mid-July.
The latest GDP estimate is the second of three for the quarter, with the third release scheduled for late September when more information becomes available.
The economy grew at a 0.6 percent pace from January through March, restrained by harsh winter weather, a labor dispute at West Coast ports and a slump in energy-industry investment after oil prices dropped.
Thursday's report also offered a first look at corporate earnings. Before-tax profits rose 2.4 percent in the second quarter, after dropping 5.8 percent in the prior period. From the same time last year, profits were down 0.5 percent.
The biggest driver of the upward revision for second-quarter GDP was a bigger gain in business investment, which included stronger readings on construction, research and development and inventories. The 8.6 percent advance in spending on intellectual property was the largest since the last quarter of 2007.
The surge in stockpiles is a doubleedged sword because, while it boosted growth last quarter, companies will probably need to trim the amount of goods on hand from July through September, leading to cuts in production that will restrain GDP.
Stockpiles climbed at a $121.1 billion annualized pace compared with an initially estimated $110 billion, and added 0.2 percentage point to economic growth.
Following the first quarter's $112.8 billion increase, it marked the biggest backto-back gain in inventories since records began in 1947.
"It does raise the risk that at some point later in the year we might see a little bit of pullback in inventories" as companies cut production, Sam Coffin, an economist at UBS Securities LLC in New York, said before the report.