Business World

Thursday 2 October 2014

US economy expands faster than thought as business invests

Shobhana Chandra

Published 29/08/2014 | 00:00

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US economy

The US economy expanded more than previously forecast in the second quarter, propelled by the biggest gain in business investment in more than two years, which bodes well for the rest of 2014.

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Gross domestic product rose at a 4.2pc annualised rate, up from an initial estimate of 4pc and following a first-quarter contraction, Commerce department figures showed yesterday in Washington. The median forecast of 77 economists surveyed by Bloomberg called for a 3.9pc gain. Corporate profits climbed by the most in almost four years.

The improvement has carried over into the second half with companies such as General Electric seeing more orders for equipment and a strengthening job market underpinning consumer spending, which accounts for about 70pc of the US economy.

Better prospects for growth signal Federal Reserve officials will continue to wind down monthly asset purchases.

"The recovery is becoming more well-entrenched," said Scott Brown, chief economist at Florida-based Raymond James who correctly projected the gain in GDP. "There is more optimism among businesses about increased demand. Ultimately, the Fed has to think seriously about the end game, though there is no need to hit the brakes any time soon."

Another new report showed the number of Americans filing for unemployment benefits was little changed last week as employers held on to staff in an improving economy.

Claims decreased by 1,000 to 298,000 in the week ended August 23 from 299,000 in the prior period, the Labor Department reported. The revisions to GDP showed the pickup in growth last quarter came from bigger gains in corporate spending on structures and equipment and a smaller trade deficit that was partly offset by more tepid inventory building.

Household consumption grew at a 2.5pc annualised rate - the same as previously estimated.

Consumers' purchasing power improved, with disposable income adjusted for inflation rising at a 4.2pc from April through June after a 3.4pc gain in the first quarter.

Today's report also included revisions to first-quarter personal income. Wages and salaries rose by $131.3bn, revised down from an initially reported $135.1bn gain. They climbed by $103.6bn in the second quarter.

Gross domestic income, which reflects all the money earned by consumers, businesses and government agencies, climbed at a 4.7pc annualised rate in the second quarter, the most since early 2012. Car sales near an eight-year high bode well for consumer spending and factory production. Cars and light trucks sold at a 16.4 million pace in July, following a 16.9 million rate the prior month that was the fastest rate since July 2006. More hiring and stock market gains that are boosting confidence are also healing household finances. (Bloomberg)

Irish Independent

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