Economy in U.S. Expanded at a 2.5% Annual Rate Last QuarterShobhana Chandra
The economy expanded at faster pace in the second quarter from the previous three months, a sign the U.S. was weathering federal budget cutbacks and higher taxes.
Gross domestic product rose at a 2.5 percent annualized rate, unrevised from the previous estimate, after expanding 1.1 percent in the first quarter, Commerce Department figures showed today in Washington. The median forecast of economists surveyed by Bloomberg was a 2.6 percent pace.
Bigger gains in hiring and worker pay are needed to propel consumer spending, the biggest part of the economy, at a time when a run-up in mortgage rates is limiting the housing rebound. Federal Reserve policy makers, who last week decided to maintain $85 billion in monthly bond buying, are seeking more evidence of lasting improvement in the expansion before trimming stimulus.
“It’s slow and steady improvement in the economy,” said Gennadiy Goldberg, a strategist at TD Securities USA LLC in New York. “We haven’t seen enough acceleration in momentum. The Fed wants to see more vigorous growth.”
A separate report today from the Labor Department showed the number of Americans filing applications for unemployment benefits unexpectedly declined last week, signaling further progress in the job market.
Jobless claims decreased by 5,000 to 305,000 in the week ended Sept. 21. The median forecast of 49 economists surveyed by Bloomberg called for an increase to 325,000.
U.S. stock futures extended gains after the reports. The contract on the Standard & Poor’s 500 Index advanced 0.2 percent to 1,689.50 at 9:04 a.m. in New York. The yield on the 10-year Treasury note climbed one basis point, or 0.01 percentage point, to 2.64 percent.
Estimates for GDP, the value of all goods and services produced, ranged from gains of 1.8 percent to 3.1 percent, based on forecasts from 79 economists surveyed by Bloomberg. The GDP estimate is the third and final for the quarter.
Consumer spending, which accounts for about 70 percent of the economy, climbed 1.8 percent, the same as previously reported, the revised data also showed.
State and local government outlays increased at a 0.4 percent annualized rate, compared with a previously reported 0.5 percent drop.
Trade became a drag on the economy as exports grew at a slower pace, while inventories contributed less to growth than previously reported. The trade gap and inventories are two of the most volatile components in GDP calculations.
At the same time, residential construction increased at a 14.2 percent annualized rate, faster than the 12.9 percent pace previously reported.
Rising real-estate values and stock-market gains are boosting Americans’ wealth, which will help sustain consumption. Net worth for households and non-profit groups climbed by $1.34 trillion in the second quarter, or 1.8 percent from the previous three months, to $74.8 trillion, Fed data showed yesterday.
Automobiles remain a bright spot. Cars and light trucks sold at a 16 million annualized rate in August, the fastest since November 2007, figures from Ward’s Automotive Group showed. Sales at General Motors Co., Ford Motor Co., Toyota Motor Corp. and Honda Motor Co. exceeded analysts’ estimates.
Domestic final sales -- which strip out inventories, exports and imports -- increased 2.1 percent compared with a previously estimated gain of 1.9 percent.
Recent housing data highlight the risk that the rise in mortgage borrowing costs to a two-year high poses for the industry’s rebound, which has boosted growth the past two years. New-home sales for August and July were the weakest back-to-back readings of the year, a report showed yesterday.
“The tightening of financial conditions observed in recent months, if sustained, could slow the pace of improvement,” the Fed said in a statement last week. Policy makers “decided to await more evidence that progress will be sustained before adjusting the pace of its purchases.”
Fed officials on Sept. 18 reduced their forecasts for economic growth this year and next. They forecast GDP will expand 2 percent to 2.3 percent in 2013, down from a June projection of 2.3 percent to 2.6 percent growth.
Business spending also may take time to pick up as fiscal uncertainty weighs on demand. Orders for goods such as computers and machinery rose less than forecast in August.
Congress hasn’t passed a budget for the 2014 fiscal year, which starts Oct. 1. The House and Senate are at odds over using the measure to stop funding the health law, and the lack of an agreement could lead to a government shutdown on Oct. 1.
Executives at Cintas Corp., a Cincinnati-based provider of uniforms, supplies and safety products to businesses, are among those concerned about the outlook.
“Much uncertainty remains in the U.S. economy,” William Gale, chief financial officer of said on a Sept. 19 earnings call. “The employment picture from month to month remains uneven and inconsistent, a reflection of business’ uncertainty about future investment plans.”
Today’s report also showed price pressures remained contained. A measure of inflation, which is tied to consumer spending and strips out food and energy costs, rose at a 0.6 percent annualized pace, the weakest performance since the first quarter of 2009 and compared with a previous estimate of 0.8 percent.
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