WASHINGTON -- The U.S. economy accelerated more quickly than expected in the second quarter thanks to a surge in exports, bolstering the case for the Federal Reserve to wind down a major economic stimulus program.
Gross domestic product grew at a 2.5 percent annual rate, according to revised estimates for the period that were released Thursday by the Commerce Department. The quarter's growth rate was more than double the pace clocked in the prior three months.
The report could boost confidence that the economy is turning a corner despite government austerity measures. At the same time, a full recovery from the 2007-09 recession is probably years away as the U.S. jobless rate remains historically high at 7.4 percent.
The government had initially estimated that GDP expanded at a 1.7 percent rate in the second quarter. But recent data on trade showed that exports climbed during the period at their fastest pace in over two years.
The government also said data from retailers showed that businesses had restocked their shelves at a faster pace in the April-June period than initially estimated. Economists polled by Reuters had forecast the economy growing at a 2.2 percent pace.
Many economists expect the economy will accelerate further in the second half of the year as austerity measures begin to weigh less on national output. That drag was evident in the second quarter, when spending contracted at all levels of government. Indeed, Thursday's data showed the economic drag from spending cuts was greater in the second quarter than initially estimated.
Still, the data could make officials at the U.S. central bank more confident in their plan to begin reducing monthly bond purchases later this year. The program has reduced borrowing costs and helped spark a recovery in the nation's housing market, which collapsed during the recession.
In the second quarter, investments in housing accounted for nearly a fifth of the economy's growth during the period. However, other reports have suggested that housing began to look more shaky toward the end of the quarter. Expectations that the Fed could reduce bond buying as early as next month have driven mortgage rates sharply higher since May.
The bond-buying program is one of America's last major economic stimulus programs, as the federal government's fiscal austerity began dragging on the economy in late 2010.
In the second quarter, higher taxes appeared to hold consumers back. Consumer spending, which accounts for more than two-thirds of U.S. economic activity, slowed to a 1.8 percent growth pace after rising at a 2.3 percent rate in the first quarter.
9 Numbers That'll Tell You How the Economy's Really Doing
U.S. Economy Sees a Growth Spurt in Second Quarter
The gross domestic product measures the level of economic activity within a country. To figure the number, the Bureau of Economic Analysis combines the total consumption of goods and services by private individuals and businesses; the total investment in capital for producing goods and services; the total amount spent and consumed by federal, state, and local government entities; and total net exports. It's important, because it serves as the primary gauge of whether the economy is growing or not. Most economists define a recession as two or more consecutive quarters of shrinking GDP.
The CPI measures current price levels for the goods and services that Americans buy. The Bureau of Labor Statistics collects price data on a basket of different items, ranging from necessities like food, clothing and housing to more discretionary expenses like eating out and entertainment. The resulting figure is then compared to those of previous months to determine the inflation rate, which is used in a variety of ways, including cost-of-living increases for Social Security and other government benefits.
The unemployment rate measures the percentage of workers within the total labor force who don't have a job, but who have looked for work in the past four weeks, and who are available to work. Those temporarily laid off from their jobs are also included as unemployed. Yet as critical as the figure is as a measure of how many people are out of work and therefore suffering financial hardship from a lack of a paycheck, one key item to note about the unemployment rate is that the number does not reflect workers who have stopped looking for work entirely. It's therefore important to look beyond the headline numbers to see whether the overall workforce is growing or shrinking.
The trade deficit measures the difference between the value of a nation's imported and exported goods. When exports exceed imports, a country runs a trade surplus. But in the U.S., imports have exceeded exports consistently for decades. The figure is important as a measure of U.S. competitiveness in the global market, as well as the nation's dependence on foreign countries.
Each month, the Bureau of Economic Analysis measures changes in the total amount of income that the U.S. population earns, as well as the total amount they spend on goods and services. But there's a reason we've combined them on one slide: In addition to being useful statistics separately for gauging Americans' earning power and spending activity, looking at those numbers in combination gives you a sense of how much people are saving for their future.
Consumers play a vital role in powering the overall economy, and so measures of how confident they are about the economy's prospects are important in predicting its future health. The Conference Board does a survey asking consumers to give their assessment of both current and future economic conditions, with questions about business and employment conditions as well as expected future family income.
The health of the housing market is closely tied to the overall direction of the broader economy. The S&P/Case-Shiller Home Price Index, named for economists Karl Case and Robert Shiller, provides a way to measure home prices, allowing comparisons not just across time but also among different markets in cities and regions of the nation. The number is important not just to home builders and home buyers, but to the millions of people with jobs related to housing and construction.
Most economic data provides a backward-looking view of what has already happened to the economy. But the Conference Board's Leading Economic Index attempts to gauge the future. To do so, the index looks at data on employment, manufacturing, home construction, consumer sentiment, and the stock and bond markets to put together a complete picture of expected economic conditions ahead.