Business World

Sunday 22 April 2018

Boost for US economy as growth rate climbs 1.3pc

Decline in jobless claims and revised increase in GDP assuage fears of repeat recession

Thomas Molloy

THE US economy grew at a 1.3pc pace in the second quarter, faster than initial estimates, giving investors hope that America might yet be able to avoid another recession.

In further good news for Ireland's second largest export market, separate figures showed new claims for jobless benefits hit a five-month low. A gauge of future home sales, however, showed that the housing sector remained on the rocks.

The GDP data "suggests the US economy entered the third quarter on a slightly better footing. That encouraging news was reinforced by the larger-than-expected decline in jobless claims, which again cast doubt on the likelihood of the economy tipping back into recession," said Joe Manimbo, a senior market analyst at Travelex Global Payments in Washington.

The revised increase in gross domestic product compares with a 1pc gain previously calculated. The Cork-based Central Statistics Office said last week that growth here in Ireland rose by the same amount in the same period.

US stocks opened higher, bolstered by the data and growing confidence in Europe's response to its debt crisis following the vote in the lower house of the German parliament to back the EFSF bailout fund. The dollar edged higher against the yen.

While the economic indicators were good, a survey of US chief executives released yesterday showed their views of the economy's prospects deteriorating in the third quarter, with the number who expect to cut jobs roughly doubling.

Faced with a weak recovery, the Federal Reserve last week announced a new measure designed to push long-term borrowing costs lower by shifting assets on its balance sheet.

Third quarter

"The third quarter did get off to a better start but there's been a loss of momentum in the economy," said Jim O'Sullivan, chief economist at MF Global in New York, who correctly forecast second-quarter GDP. "With consumer confidence down and equity markets down, the best hope is sluggish growth for the next few months."

A breakdown of the GDP figures showed consumer spending rose at a 0.7pc annual pace. Household purchases in the first quarter climbed at a 2.1pc annual pace.

The gap between exports and imports narrowed, helping to add a 0.24 percentage point to growth last quarter. Business investment in equipment and software rose at a 6.2pc annual rate following an 8.7pc pace in the first three months of the year.

The US economy will expand 1.8pc in the third quarter, according to a Bloomberg survey of economists conducted earlier this month. Concern about the recovery prompted President Barack Obama to propose $44bn (€32bn)in infrastructure spending, subsidies to local governments to stem teacher layoffs and cutting in half the payroll taxes paid by workers and small-business owners.

Irish Independent

Business Newsletter

Read the leading stories from the world of Business.

Also in Business