US econ­omy grew 3.7pc in 2Q, more than forecast

The Pak Banker - - FRONT PAGE -

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.

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