US economy expands 3.1% in Q2
WASHINGTON (Reuters) – The US economy expanded a bit faster than previously estimated in the second quarter, recording its quickest rate of growth in more than two years, but the momentum likely slowed in the third quarter due to the impact of Hurricanes Harvey and Irma.
Gross domestic product increased at a 3.1 percent annual rate in the April-June period, the Commerce department said in its third estimate on Thursday. The upward revision from the three percent rate of growth reported last month reflected a rise in inventory investment.
“The destruction caused by Hurricanes Harvey and Irma and the resulting disruption ... are expected to be a drag on third-quarter growth,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors in Kalamazoo, Michigan. “Nonetheless, the economy remains on track.”
Economic growth last quarter was the quickest since the first quarter of 2015 and followed a 1.2 percent pace in the January-March period. Economists estimate that Harvey and Irma, which struck Texas and Florida, could cut as much as six-tenths of a percentage point from GDP growth in the third quarter.
Harvey was blamed for much of the decline in retail sales, industrial production, homebuilding and home sales in August. Further weakness is anticipated in September because of Irma.
Rebuilding efforts are, however, expected to boost GDP growth in the fourth quarter and in early 2018. Signs of increasing inventory investment by businesses could soften the storms’ punch to the economy.
In a separate report on Thursday, the Commerce Department said wholesale inventories jumped one percent in August after rising 0.6 percent in July. Inventories at retailers shot up 0.7 percent after being unchanged in July. The department also said the goods trade deficit fell 1.4 percent to $62.9 billion in August.
That leaves an upside risk to growth estimates for the JulySeptember quarter, which are below 2.5 percent.
“The data available so far suggest that the firming in real inventory accumulation between second quarter and third quarter could be signifi- cant and could add over a full percentage point to growth in the third quarter,” said Daniel Silver, an economist at JPMorgan in New York.
Harvey and Irma continue to impact the labor market and are expected to cut into job growth this month. In a third report, the Labor Department said initial claims for state unemployment benefits in- creased 12,000 to a seasonally adjusted 272,000 for the week ended Sept. 23.
Still, the labor market remains strong. Claims have now been below the 300,000 threshold, which is associated with a robust labor market, for 134 straight weeks. That is the longest such stretch since 1970, when the labor market was smaller.