U.S. Second-Quarter Growth Rate Revised Up

The Commerce Department issues the third of three estimates of how the USA economy performed in the April-June quarter on Friday, September 25, 2015.

Real final sales of domestic product increased at an annualized 3.7% rate, compared to 3.5% in the second estimate.

The new data Friday showed that economic growth rebounded sharply from weak 0.6% annualized growth in the first quarter, fueled by increases in consumer spending, exports, business investment and government expenditures.

It was fueled by higher consumer spending – mainly on services like healthcare and transport – which accounts for more than two-thirds of U.S. economic activity.

The data supports the case that the USA economy may be gaining enough strength to withstand an increase in benchmark interest rates from record low levels.

Fed Chair Yellen said Thursday that she is ready to raise interest rates this year and intends to let the labor market run hot for a time to heal the lingering scars of the worst recession since the Great Depression.

Exports of goods and services, which were a 0.8 percent drag in the first quarter, contributed 0.6 percent in the second.

Economists’ forecasts for GDP, the value of all goods and services produced, ranged from 2.7% to 4.1%.

Stocks on Wall Street made a bright start in the wake of the GDP figures and Ms Yellen’s comments, with the Dow Jones rising 1% in morning trade.

The revisions to second-quarter growth also reflected a smaller accumulation of inventories than earlier estimated, reducing the chance that a sharp unwinding in inventories would drag on growth. The new measures of average GDI and GDP was less impressive at +2.3% vs. +2.1% prior.

It’s worth emphasizing that quarterly growth numbers can vary quite a bit, and while 3.9% GDP growth in the spring is encouraging, projections point to growth of about 2.5% in this quarter, and growth of about 2.3% for the year overall.

“For the Fed, the forward-looking part is most important and the one positive take-away is inventory contribution”, said Gennadiy Goldberg, interest rates strategist at TD Securities. The Bloomberg survey median called for a second-quarter advance of 3.2%.

For July, industrial production was 1.3 percent above July 2014, and in August, the number was only 0.9 percent over August 2014.