US econ­omy surged at 3.7 per­cent rate in April-June

The China Post - - FRONT PAGE - BY MARTIN CRUTSINGER

The U.S. econ­omy posted a much big­ger re­bound in growth dur­ing the spring than pre­vi­ously re­ported, thanks to im­prove­ments in a num­ber of ar­eas in­clud­ing con­sumer spend­ing and busi­ness in­vest­ment.

The econ­omy ex­panded at an an­nual rate of 3.7 per­cent in the April-June quar­ter, more than a per­cent­age point greater than the 2.3 per­cent orig­i­nally es­ti­mated, the Com­merce Depart­ment re­ported Thurs­day.

It was the strong­est growth since last sum­mer and marked a sharp im­prove­ment from the ane­mic 0.6 per­cent ad­vance dur­ing the Jan­uary-March quar­ter when a harsh win­ter sapped ac­tiv­ity.

An­a­lysts

be­lieve growth has slowed a bit in the cur­rent quar­ter to around 2.5 per­cent. Some have ex­pressed con­cern that shrink­ing global stock mar­kets and a sharp slow­down in China will fur­ther weaken the econ­omy in com­ing months.

The re­vi­sion for sec­ond quar­ter growth re­flected a boost in con­sumer spend­ing, which grew at an­nual rate of 3.1 per­cent, up from a 1.8 per­cent growth rate in the first quar­ter.

Busi­ness i nvest­ment in struc­tures and equip­ment was re­vised higher to show growth of 3.2 per­cent, while hous­ing con­struc­tion was re­vised up to a gain of 7.8 per­cent.

Also fu­el­ing growth were strong gains in state and lo­cal gov­ern­ment spend­ing and busi­ness re­stock­ing of store shelves. The rise in in­ven­to­ries, how- ever, could act as a drag in the cur­rent quar­ter if busi­nesses cut­back on or­der­ing be­cause of con­cerns they have too many un­wanted goods.

Mark Zandi, chief economist at Moody’s An­a­lyt­ics, is fore­cast­ing that the econ­omy will slow to growth of around 2.8 per­cent in the cur­rent quar­ter but ac­cel­er­ate to a 3.5 per­cent an­nual rate in the Oc­to­ber-De­cem­ber pe­riod. But he said that is based on an ex­pec­ta­tion that the re­cent mar­ket tur­bu­lence will not in­flict long- last­ing dam­age on the econ­omy.

“My forecast rests on the as­sump­tion that this is a gar­den va­ri­ety mar­ket cor­rec­tion, with stock prices drop­ping by 10 per­cent from their re­cent high,” Zandi said. “If we get a big­ger de­cline of 20 per­cent, then that will hurt con­sump­tion and hous­ing, and we will not get the job growth we are ex­pect­ing.”

A de­cline in stock prices of 10 per­cent is gen­er­ally con­sid­ered a mar­ket cor­rec­tion, while a fall of 20 per­cent is viewed as the start of a bear mar­ket.

On Wed­nes­day, stocks ral­lied to re­coup some of the huge losses in­curred in the pre­vi­ous ses­sions. The Dow Jones in­dus­trial av­er­age jumped 619 points, its big­gest one-day gain in seven years. That snapped a six- day los­ing streak in which the Dow tum­bled about 1,900 points, a plunge that wiped out more than US$ 2 tril­lion in cor­po­rate value.

An­a­lysts cau­tioned that there could be more tur­bu­lence ahead, in part be­cause of un­set­tled con­di­tions in China. Bei­jing has de­val­ued its cur­rency and taken other steps to ad­dress a ma­jor slow­down in its econ­omy, the world’s sec­ond- largest.

Wall Street took some com­fort Wed­nes­day from com­ments by Wil­liam Dud­ley, pres­i­dent of the New York Fed­eral Re­serve Bank. Dud­ley told re­porters that the case for a Fed rate hike in Septem­ber is “less com­pelling to me than it was a few weeks ago,” given China’s trou­bles, fall­ing oil prices and weak­ness in emerg­ing mar­kets.

Be­fore the re­cent tur­moil, many econ­o­mists had thought that signs of an im­prov­ing U.S. econ­omy would lead the Fed to be­gin rais­ing its key short- term rate, which it’s kept at a record low near zero since late 2008. Now, many think the Fed will post­pone its first rate hike un­til De­cem­ber or per­haps even later.

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