Economy grew faster than previously thought in Q2

September 28 00:20 2015

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% in the April-June quarter, up from a previous estimate of 3.7%, the Commerce Department reported Friday. The new-found 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% increase in the first quarter when the economy was battered by a harsh winter. Economists estimate that growth in the third quarter has slowed to around 2.5%. The revision in second quarter growth was led by a boost in consumer spending, which expanded at a 3.6% rate, up from the previous estimate of a 3.1% 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% pace, even better than the 7.6% 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%, which was revised up to 3.7% 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% in the October-December period. For the whole year, economists expect a modest gain of around 2.2%, in line with the modest growth seen during the six years of the current recovery. In 2014, the economy grew 2.4% after 1.5% growth in 2013.