U.S. Economy Gains Steam, Expands at Brisk Pace in 2Q

Economy GDP
J Pat Carter/AP
By Lucia Mutikani

WASHINGTON -- The U.S. economy grew at its fastest pace in 2½ years in the second quarter with all sectors contributing to the jump in output in a bullish signal for the remainder of the year.

The Commerce Department on Friday raised its estimate of gross domestic product to show the economy expanded at a 4.6 percent annual rate. That was in line with Wall Street's expectations.

The best performance since the fourth quarter of 2011 reflected a faster pace of business spending and sturdier export growth than previously estimated.

But consumer spending, which accounts for more than two-thirds of U.S. economic activity, was unrevised as stronger health care outlays were offset by weaknesses in recreation and durable goods spending.

With domestic demand increasing at its fastest pace since 2010, the economic recovery appeared more durable after growth slumped in the first quarter because of an unusually cold winter.

So far, economic data such as manufacturing, trade and housing suggest that much of the second-quarter momentum spilled over into the third quarter. Growth estimates for the July-September quarter range as high as a 3.6 percent pace.

Second-quarter GDP was previously estimated to have advanced at a 4.2 percent rate. The economy contracted at a 2.1 percent pace in the first quarter.

The dollar extended gains against a basket of currencies on the report. U.S. stock index futures were little changed.

The strong growth pace and domestic demand growth help to explain the robust job gains during the quarter, as well as the sharp decline in the unemployment rate.

When measured from the income side, the economy grew at a robust 5.2 percent pace, revised up from the previously reported 4.7 percent rate.

Business spending on equipment was raised to an 11.2 percent pace from a 10.7 percent rate. Businesses also invested more in nonresidential structures, such as gas drilling, as well as in research and development.

Businesses accumulated $84.8 billion worth of inventory in the second quarter, a bit more than the previously reported $83.9 billion. That saw restocking contributing 1.42 percentage points to GDP growth rather than 1.39 percentage points.

Still, there is little sign of an inventory overhang, a positive signal for third-quarter GDP growth.

Growth in consumer spending was unrevised at a 2.5 percent rate in the second quarter.

Though trade was a drag for a second consecutive quarter, export growth was raised to an 11.1 percent pace, the fastest since the fourth quarter of 2010, from a 10.1 percent rate.

Housing market-related spending was revised up as was government spending.

Corporate profits rebounded a bit more strongly than previously reported from a decline in the first quarter that had been spurred by the expiration of a depreciation bonus.

9 Numbers That'll Tell You How the Economy's Really Doing
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U.S. Economy Gains Steam, Expands at Brisk Pace in 2Q
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.
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