US economy bounces back strongly in second quarter

WASHINGTON (TIP): US economic growth accelerated more than expected in the second quarter and the decline in output in the prior period was less steep than previously reported, bolstering views for a stronger performance in the last six months of the year. Gross domestic product expanded at a 4.0 per cent annual rate as activity picked up broadly after shrinking at a revised 2.1 per cent pace in the first quarter, the commerce department said.

That pushed GDP above the economy’s potential growth trend, which analysts put somewhere between a 2 per cent and 2.5 per cent pace. Economists had forecast the economy growing at a 3.0 per cent rate in the second quarter after a previously reported 2.9 per cent contraction. A separate report showing private employers added 218,000 jobs to their payrolls last month, a decline from June’s hefty gain of 281,000, did little to change perceptions the economy was strengthening.

US stock futures added to gains and yields on US Treasuries rose after the data. The US dollar hit a seven-week high against the yen and an eight-month high against the euro. The economy grew 0.9 per cent in the first half of this year and growth for 2014 as a whole could average above 2 per cent. The first quarter contraction, which was mostly weatherrelated, was the largest in five years.

Employment growth, which has exceeded 200,000 jobs in each of the last five months, and strong readings on the factory and services sectors from the Institute for Supply Management underpin the bullish expectations for the rest of the year. The government also published revisions to prior GDP data going back to 1999, which showed the economy performing much stronger in the second half of 2013 and for that year as a whole than previously reported.

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