US econ­omy grew at 3.9% rate in spring


The U.S. econ­omy grew at an even faster clip in the spring than pre­vi­ously es­ti­mated. But that growth likely slowed in the sum­mer, held back by global head­winds and tur­bu­lent fi­nan­cial mar­kets.

The over­all econ­omy ex­panded at an an­nual rate of 3.9 per­cent in the AprilJune quar­ter, up from a pre­vi­ous es­ti­mate of 3.7 per­cent, the U.S. Com­merce Depart­ment re­ported Fri­day. The new­found strength came from ad­di­tional gains in con­sumer spend­ing, busi­ness in­vest­ment and residential con­struc­tion.

The sec­ond quar­ter ex­pan­sion in the gross do­mes­tic prod­uct, the econ­omy’s to­tal out­put of goods and ser­vices, was a marked im­prove­ment from an ane­mic 0.6 per­cent in­crease in the first quar­ter when the econ­omy was bat­tered by a harsh win­ter.

While econ­o­mists be­lieve growth in the third quar­ter has slowed to around 2.2 per­cent to 2.5 per­cent, they ex­pect a mod­est ac­cel­er­a­tion in ac­tiv­ity for the fi­nal three months of this year.

“Over­all, the out­look on the U.S. econ­omy for the re­main­der of the year re­mains fairly op­ti­mistic, sup­ported by con­tin­u­ing job cre­ation, in­creas­ing con­sumer spend­ing, im­prove­ments in the hous­ing sec­tor, and solid man­u­fac­tur­ing num­bers,” said Jim Baird, chief in­vest­ment of­fi­cer for Plante Moran Fi­nan­cial Ad­vi­sors.

The re­vi­sion in sec­ond quar­ter growth was led by a boost in con­sumer spend­ing, which ex­panded at a 3.6 per­cent rate, up from the pre­vi­ous es­ti­mate of a 3.1 per­cent ad­vance. The stronger re­sult re­flected in­creases in spend­ing on such con­sumer ser­vices as health care and trans­porta­tion.

Busi­ness in­vest­ment spend­ing was re­vised higher, re­flect­ing in­creased spend­ing on struc­tures and equip­ment. Residential con­struc­tion grew at a 9.3 per­cent pace, even bet­ter than the 7.6 per­cent growth es­ti­mated last month.

Fri­day’s re­port was the gov­ern­ment’s third and fi­nal es­ti­mate for sec­ond quar­ter growth. The ini­tial look tabbed GDP growth in the spring at 2.3 per­cent, which was re­vised up to 3.7 per­cent last month.

Econ­o­mists be­lieve the sub­se­quent slow­down in the sum­mer will re­flect a re­duc­tion by busi­nesses in re­stock­ing their in­ven­to­ries.

Once un­wanted in­ven­to­ries are worked down, the ex­pec­ta­tion is that growth will ac­cel­er­ate again in the fi­nal quar­ter of the year. Econ­o­mists at Macroe­co­nomic Ad­vi­sors are fore­cast­ing GDP growth of 2.7 per­cent in the Oc­to­ber-De­cem­ber pe­riod.

For the whole year, econ­o­mists ex­pect a mod­est gain of around 2.2 per­cent, in line with the mod­est growth seen dur­ing the six years of the cur­rent re­cov­ery. In 2014, the econ­omy grew 2.4 per­cent af­ter 1.5 per­cent growth in 2013.

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