US rebounds strongly in second quarter

A construction workers build a commercial complex in Springfield, Illinois. The US economy received a boost from business investment and investment in home building. — AP

Gross domestic product expanded at a four per cent annual rate as activity picked up broadly after shrinking at a revised 2.1 per cent pace in the first quarter, the Commerce Department said on Wednesday.

That pushed GDP above the economy’s potential growth trend, which analysts put somewhere between a two per cent and 2.5 per cent pace. Economists polled by Reuters had forecast the economy growing at a three per cent rate in the second quarter after a previously reported 2.9 per cent contraction.

The economy grew 0.9 per cent in the first half of this year and growth for 2014 as a whole could average above two per cent. The first quarter contraction, which was mostly weather-related, was the largest in five years. Employment growth, which has exceeded 200,000 jobs in each of the last five months, and strong readings on the factory and services sectors from the Institute for Supply Management underpin the bullish expectations for the rest of the year.

The government also published revisions to prior GDP data going back to 1999, which showed the economy performing much stronger in the second half of 2013 and for that year as a whole than previously reported.

Consumer spending growth, which accounts for more than two-thirds of US economic activity, accelerated at a 2.5 per cent pace, as Americans bought long-lasting manufactured goods and spent a bit more on services. Consumer spending had braked to a 1.2 per cent pace in the first quarter because of weak healthcare spending.

The saving rate increased to 5.3 per cent from 4.9 per cent in the first quarter as incomes rose, which bodes well for future spending. Inventories contributed 1.66 per centage points to GDP growth after chopping off 1.16 points in the first quarter.

The economy also received a boost from business investment, government spending and investment in home building. Trade, however, was a drag for a second consecutive quarter as some of the increase in domestic demand was met by a surge in imports.