The US economy rebounded more strongly than first believed in the second quarter, the Commerce Department announced Thursday.
Gross domestic product – the broadest measure of the economy’s health – grew at an annualized rate of 4.2% for the three months to the end of June, according to the Commerce Department’s revision of the number. That topped the initial estimate of 4% and beat economists’ estimates for the quarter. Economists polled by Reuters had expected second-quarter GDP growth pace to be revised down to 3.9%.
Business spending grew more in the second quarter than initially estimated and US-based corporations posted higher profits. Corporate profits after tax totalled a seasonally adjusted annual rate of $1.840tn, up 6% from $1.735tn in the first quarter. The quarter-on-quarter rise comes after two consecutive quarters of declining profits.
Consumers also picked up the pace. Real personal consumption expenditures increased 2.5% in the second quarter, compared with an increase of 1.2% in the first. Durable goods increased 14.3%, compared with an increase of 3.2% in the previous period.
The Great Recession officially ended in 2009 and the US’s economic recovery is now in its fifth year. But that recovery has generally shown a sluggish pace. In the first quarter GDP contracted by 2.1% chilled by the impact of a severe winter and falling exports. The contraction means the economy averaged a growth rate of just 1.05% in the first half of the year.
Stuart Hoffman, chief economist at PNC Bank, said the latest news pointed to solid growth in the second half of the year. “Demand in the second quarter was revised higher, indicating that businesses and consumers are buying. And the contribution to growth from inventories was revised lower, which means that inventories will be less of a drag on growth in the second half of this year, as businesses are less concerned about having too much stock on hand
“Also, profits and gross domestic income were also both good in the second quarter. Businesses have bounced back after the bad winter disrupted production and demand, and consumers are gradually earning and spending more,” he said.
PNC now estimates that US GDP will grow at an annual rate of 3% in the second half of 2014.
The Commerce Department’s figures came as the the Labour Department announced initial claims for unemployment benefits decreased by 1,000 to a seasonally adjusted 298,000 in the week ended August 23. Claims for the previous week were revised up slightly to 299,000.
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