Tuesday 21 October 2014

US economy boosted by 4% growth

Published 30/07/2014 | 19:54

Time to wind up the windfall tax to help construction sector meet the nation's housing needs

The US economy sprang back to life in the second quarter, growing by 4%.

The rebound reported by the Department of Commerce followed a sharp 2.1% drop in economic activity in the first quarter - the biggest contraction since early 2009.

Consumers, businesses, the housing industry and state and local governments all combined to fuel the growth. The expansion will reinforce analysts' view that the economy's momentum is extending into the second half of the year, when they forecast an annual growth rate of around 3%.

The government also updated its estimates of growth leading into this year. They show the economy expanded in the second half of 2013 at the fastest pace in a decade and more than previously estimated.

The revised data also show that the economy grew faster in 2013 than previously estimated, though more slowly in 2011 and 2012 than earlier thought.

The second quarter's 4% growth in the gross domestic product - the economy's total output of goods and services - was the best showing since a 4.5% increase in the third quarter of 2013.

At the same time, a higher trade deficit slowed growth as imports outpaced a solid increase in exports.

Paul Ashworth, chief US economist at Capital Economics, said that given the solid rebound last quarter, he's boosting his estimate for growth this year to a 2% annual rate, up from a previous 1.7% forecast.

Ashworth said the rebound also supported his view that the Federal Reserve will be inclined to start raising interest rates early next year.

Most economists have been predicting that the Fed would wait until mid-2015 to start raising rates.

"At the margin, this GDP report supports our view that an improving economy will persuade the Fed to begin raising rates in March next year," Ashcroft wrote in a research note.

Ashcroft is among a group of economists who think growing strength in the job market and the overall economy will prompt the Fed to move faster to raise rates to make sure inflation doesn't get out of hand.

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